1

TABLE OF CONTENTSPage

LIST OF TABLES AND EXHIBITS 4

LIST OF ACRONYMS 5

EXECUTIVE SUMMARY 7

I. INTRODUCTION 9

II. FLORIDA PUBLIC SERVICE COMMISSION ACTIONS 11

The Cost of Basic Local Service 11

Fair and Reasonable Rates Study 13

Conclusions: Report on Fair and Reasonable Rates 15

Multitenant Environment Report 16

Area Code Relief 18

Status of Florida Area Codes 19

Florida’s Petition to the FCC 21

Competitive Carriers’ Petition 24

Pricing of UNEs 25

Access to Loops 26

Operational Support System Issues 27

III. STATUS OF LOCAL COMPETITION 31

Status of Local Service Competition Throughout Florida 32

The Overall Impact of Local Exchange TelecommunicationsCompetition on the Continued Availability of Universal Service 33

The Ability of Competitive Providers to Make FunctionallyEquivalent Local Exchange Services Available to BothResidential and Business Customers at Competitive Rates,Terms, and Conditions 34

The Ability of Customers to Obtain Functionally EquivalentServices at Comparable Rates, Terms, and Conditions 37

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The Overall Impact of Price Regulation on the Maintenanceof Reasonably Affordable and Reliable High-QualityTelecommunications Services 43

What Additional Services, if Any, Should Be Included in the Definition of Basic Local Telecommunications Services,Taking Into Account Advances in Technology and MarketDemand 44

Any Other Information and Recommendations Which May Be in the Public Interest 45

Summary of Status of Local Competition Throughout Florida 45

Status of Local Service Competition in Florida by Exchange 46

Prepaid Local Service 62

How Florida Compares to the Rest of the United States 63

Limitations in Preceding ALEC Market Analyses 64

Complaints Filed By ALECs Against LECs 65

Summary 72

IV. CONCLUSION 73

APPENDIX A ALECs CERTIFICATED as of June 30, 1999 75

APPENDIX B KEY FEDERAL ISSUES 85

AT&T Corp. v. Iowa Utilities Board 85

Treatment of Traffic to Internet Service Providers 87

Universal Service 93

FCC’s Seventh Report and Order 93

Texas Office of Public Utility Counsel v. FCC 95

Schools and Libraries 97

Access Charges 97

PICCs 97

Subscriber Line Charge 98

X-Factor 98

Truth-in-Billing 99

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Numbering Issues 99

Area Code Exhaust 100

Local Number Portability 101

APPENDIX C EMERGING AND CONVERGING UTILITY MARKETS 102

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LIST OF TABLES and EXHIBITS

PAGE

Table 2-1 Implementation of Area Codes 19

Table 2-2 Status of Relief for Florida’s Area Codes 20

Exhibit 1 Florida Area Codes 22

Table 3-1 ALECS Providing Service 38

Table 3-2 Local Rates for Selected ALECs in Various Exchanges 40

Table 3-3 Consumer Complaints - Justified 44

Table 3-4 Exchanges With an ALEC Provider 47

Table 3-5 Summary of Florida Exchanges With and Without an ALEC

Provider 56

Table 3-6 Exchanges With the Most ALEC Providers 56

Table 3-7 ALEC Providers by LATA 58

Exhibit 2 Exchanges without an ALEC Provider 59

Table 3-8 ALEC Owned Switches 61

Table 3-9 List of ALEC/LEC Complaints 67

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LIST OF ACRONYMS

ACI .........................................................

ALEC .....................................................

AT&T ......................................................

ATM ......................................................

BEBR ....................................................

Bell Laboratories ....................................

BellSouth ................................................

COCUS ..................................................

COLR .....................................................

Commission ...........................................

CTIA .......................................................

DSL ........................................................

FCC .......................................................

FCCA .....................................................

FLEC ......................................................

FNPRM ..................................................

FPSC .....................................................

FTIA .......................................................

GTEFL ...................................................

ISP .........................................................

Joint Board..............................................

Arrow Communications, Inc.

Alternative Local Exchange Company

AT&T Comm. of the Southern States

Asynchronous Transfer Mode

Bureau of Economic and Business Research

Bell Laboratories, Inc.

BellSouth Telecommunications, Inc.

Central Office Code Utilization Survey

Carrier of Last Resort

Florida Public Service Commission

Cellular Telecommunications Industry Assoc.

Digital Subscriber Line

Federal Communications Commission

Florida Competitive Carriers Association

Forward-Looking Economic Costs

Further Notice of Proposed Rulemaking

Florida Public Service Commission

Florida Telecommunications Industry Assoc.

GTE Florida, Inc.

Internet Service Provider

Federal-State Joint Board

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LATA ......................................................

LEC ........................................................

LERG .....................................................

LNP ........................................................

MCI ........................................................

MTE .......................................................

NANPA ...................................................

NXX .......................................................

NPA .......................................................

OSS .......................................................

PBX ........................................................

PICC ......................................................

SLC ........................................................

Sprint .....................................................

TA 96 .....................................................

TSLRIC ..................................................

UNE .......................................................

US ..........................................................

Local Access and Transport Area

Local Exchange Company

Local Exchange Routing Guide

Local Number Portability

MCI Telecommunications Corp.

Multitenant Environment

North America Number Plan Administrator

End Office Code

Area Code

Operational Support System

Private Branch Exchange Trunk

Presubscribed Interexchange Carrier Charge

Subscriber Line Charge

Sprint-Florida, Inc.

Telecommunications Act of 1996

Total Service Long Run Incremental Cost

Unbundled Network Element

Universal Service

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EXECUTIVE SUMMARY

C This report is prepared to satisfy the statutory requirements of Section 364.386,

Florida Statutes. It contains a review of the major FPSC actions in the past year,

discusses the status of local exchange competition within Florida’s

telecommunications markets, and reviews key federal rulings that affect

telecommunications in Florida.

C As of September 15, 1999, the Commission has received 9 petitions this year for

arbitration of rates, terms, and conditions for interconnection, unbundling, and

resale. Since January 1999, we have received 310 negotiated agreements between

ALECs/LECs for review, and have approved 1,045 negotiated agreements since

June 1996.

C As of June 30, 1999, 265 ALECs were certificated in Florida, 80 of which were

providing local service to over 555,000 business and residential access lines.

C Florida has experienced gains in competition since the last report, although the

LECs clearly remain the dominant providers. Measured with respect to access lines

served, ALECs have increased their total market share from 1.8% to 5.0%. Their

percentage of total business access lines grew from 4.3% to 12.2%; residential lines

rose to 1.3%, compared to .7% in 1998. Competitive entrants appear to be venturing

into other areas of the state instead of concentrating solely on the heavily populated

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areas.

C Consumer complaints against the three major LECs that were a violation of

Commission rules have dropped since last year’s report. Comparing the first seven

months of 1998 to the same period in 1999, BellSouth complaints per 1,000 access

lines served declined from .0382 to .0097; GTEFL, from .0861 to .0101; and Sprint-

Florida, from .0226 to .0103.

C The Commission has received 25 ALEC complaints against LECs since last year’s

report. While 18 have been resolved, seven are scheduled for hearings in the

upcoming months.

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CHAPTER I: INTRODUCTION

Chapter 364, Florida Statutes, provides the framework the Florida Public Service

Commission uses for regulation of the telecommunications industry. One requirement

contained therein is that the Commission prepare and deliver a report on "the status of

competition in the telecommunications industry" to the Governor and the Legislature by

December 1 of each year.

The details of this report are specified in Chapter 364.386, Florida Statutes, which

requires that the report discuss the following points:

C The overall impact of local exchange telecommunications competition on the

continued availability of universal service.

C The ability of competitive providers to make functionally equivalent local exchange

services available to both residential and business customers at competitive rates,

terms, and conditions.

C The ability of customers to obtain functionally equivalent services at comparable

rates, terms, and conditions.

C The overall impact of price regulation on the maintenance of reasonably affordable

and reliable high-quality telecommunication services.

C What additional services, if any, should be included in the definition of basic local

telecommunications services, taking into account advances in technology and

market demand.

C Any other information and recommendations which may be in the public interest.

In addition to these requirements, a 1997 amendment to Section 364.161(4), Florida

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Statutes, requires that the report include a discussion of all complaints filed by alternative

local exchange companies (ALECs) against incumbent local exchange companies (LECs).

Information for this report was obtained by surveying the LECs and ALECs.

Additional research was conducted by reviewing numerous sources, such as ALEC

certification records, FCC and FPSC orders and dockets, industry publications, and articles

from an assortment of sources.

The report is divided into three chapters. Following this introduction, Chapter II

discusses several significant issues addressed by the FPSC during the past year. Chapter

III specifically discusses the six issues identified in Section 364.386, Florida Statutes, and

provides the telecommunications competition information on an exchange by exchange

basis. Chapter IV is the concluding chapter.

Three appendices are included in the report this year. Appendix A provides a list

of the alternative local exchange providers certificated as of June 30, 1999, and identifies

those companies that have a basic local price list on file as of June 30, 1999. Appendix B

pinpoints key rulings by the FCC and the United States Supreme Court during the past

year. Appendix C discusses other entrants into the telecommunications industry including

wireless, cable and electric companies.

CHAPTER II: FLORIDA PUBLIC SERVICE COMMISSION ACTIONS

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In this chapter we discuss some of the major actions taken by the Commission

during the past year to foster a more competitive telecommunications marketplace in

Florida. Topics discussed include: 1) The cost of basic local service report; 2) fair and

reasonable rates study; 3) multi-tenant environment report; 4) area code relief; and 5) the

Florida Competitive Carriers Association/AT&T petition.

THE COST OF BASIC LOCAL SERVICE

Section 364.025(4)(b), Florida Statutes, required the Commission to determine and

report to the Legislature the total forward-looking cost of providing basic local

telecommunications services on a geographic basis no larger than a wire center, using a

cost proxy model that was to be selected by the Commission after a formal evidentiary

hearing. As stated in the law, the purpose of this study was to assist the Legislature in

establishing a permanent universal service mechanism. For small local exchange

companies that serve fewer than 100,000 access lines, Section 364.025(4)(c), Florida

Statutes, allowed the Commission to select a different proxy model or a fully distributed

embedded cost allocation.

In October 1998, the Commission conducted an administrative hearing according

to the provisions of Chapter 120, Florida Statutes, and our rules. Twenty parties intervened

and participated in the proceeding. There were many issues addressed at the hearing,

including the fundamental issue of defining “basic local service” for the purpose of

potentially establishing a permanent universal service mechanism.

The principal point of contention between the parties was which cost proxy model

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the Commission should select for the three major incumbent local exchange companies

(LECs): BellSouth Telecommunications, Inc. (BellSouth), GTE Florida, Inc. (GTEFL), and

Sprint-Florida, Incorporated (Sprint). BellSouth, GTEFL, and Sprint all supported the

BCPM 3.1 cost proxy model. AT&T Communications of the Southern States, Inc. (AT&T)

and MCI Telecommunications Corp. (MCI) sponsored the HAI 5.0a cost proxy model. Both

models contain highly complex algorithms and require thousands of discrete input values.

Proponents of both models argued that while neither model was perfect, their model was

superior and best met the requirements of Section 364.025(a), Florida Statutes. After much

deliberation, the Commission decided to adopt the BCPM 3.1 cost proxy model but with

certain model revisions that were completed by the sponsors and submitted to the

Commission by January 12, 1999.

The Commission accepted the use of the embedded cost methodology proposed

by the small LECs but with several required adjustments. The embedded cost

methodology generally produced a lower cost for basic local service than the outputs of the

models, and the Commission majority believed that it was appropriate to use these lower

costs. However, the Commission also provided in its report forward-looking cost data so

that the Legislature had the entirety of information available for the small LECs. A report

containing the FPSC’s recommendations from the cost proxy model docket and related

topics was submitted to the Legislature in February 1999 as required by Section 364.025,

Florida Statutes.

FAIR AND REASONABLE RATES STUDY

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Chapter 98-277, Sections 2(1) and 2(2)(a), Laws of Florida, directed the Commission

to study what would be a fair and reasonable basic local telecommunications rate in

Florida. This directive imposed the following requirements on the Commission: (1) to study

and report to the Legislature the relationships among the costs and charges associated

with providing basic local service, intrastate access, and other services provided by local

exchange telecommunications companies, and (2) to report its conclusions as to the fair

and reasonable Florida residential basic local telecommunications service rate considering

affordability, the value of service, comparable residential basic local telecommunications

rates in other states, and the cost of providing residential basic local telecommunication

services in this state, including the proportionate share of joint and common costs. The

statute also imposed a requirement on the local exchange companies to provide to the

Commission cost data and analyses that support the cost of providing residential basic

local telecommunications service in their service area.

On June 4, 1998, the Commission opened Special Project No. 980000A-SP, titled

Fair and Reasonable Residential Basic Local Telecommunications Rates, to provide the

forum to address the issues in this study. Numerous interested persons, representing

various segments of the telecommunications industry as well as consumer advocates and

the public, participated in this project. Information for the study was gathered through a

multi-faceted approach, including:

C Customer Hearings - Twenty-two customer hearings were held throughout the state

to allow customers to address the Commissioners. In addition, customers who were

unable to attend the hearings in person were encouraged to express their concerns

in writing.

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C Cost Studies - On August 1, 1998, the local exchange companies filed cost and

other data with the Commission. The information that was filed, along with an

executive summary, was made available to consumers through the public libraries

in each county. Customers were notified through bill inserts from their local

exchange company of its availability.

C Affordability Survey - The Commission staff, in conjunction with interested persons,

developed an affordability survey to gauge affordability through the eyes of the

consumer. The telephone survey was conducted through the University of Florida’s

Bureau of Economic and Business Research (BEBR) Survey Program.

C Survey of Rates and Rate Actions in Other States - This portion of the study

consisted of two components: First, a survey of rates in other states was conducted.

Florida rates were compared to rates in other states after controlling for differences

in average per capita income, local calling scope, and population density (a

surrogate for cost). Second, the Commission analyzed recent rate actions in other

states.

C Technical Workshop - The Commission conducted a four-day technical workshop

in Tallahassee on October 1, 2, 8, and 9, 1998. At that workshop, ten organizations

sponsored speakers. The discussion largely centered on the cost of providing

service, with the debate on the merits of allocating loop costs being the most

contentious issue.

Each of the components included in the study addressed one or more of the

elements required by the statute: affordability, the value of service, comparable residential

1 Consumer perceived barriers to entry include rate issues, industry structure and wirelesscompetition.

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basic local telecommunications rates in other states, and the cost of providing residential

basic local telecommunication services in this state.

Conclusions: Report on Fair and Reasonable Rates

One of the possible goals of any change in local rates would be to encourage

competition. However, there was general consensus that there is no significant landline

competition in any residential telecommunications market in this country, even though other

states have higher rates. Participants in the study raised doubts as to whether there would

ever be meaningful landline competition for most residential customers in Florida, due to

barriers1 to entry and other factors. Additionally, supply conditions may dictate the industry

structure. Instead of facilities-based services, landline competition may be in services

provided over facilities of a few providers. Thus, higher rates alone might not be sufficient

to foster competition in landline telecommunications services. Nevertheless, the

Commission concluded that if rebalancing is considered as a boost to competition, an

increase of up to $5 per month may be appropriate, based solely on the four elements the

Commission was charged with studying. It was recommended that any such rate increase

be offset by decreases in other rates, including touchtone and intrastate switched access

charges.

A major concern of any rate increase would be the loss of certain at-risk citizens

from the system, including low income and fixed income consumers. The Lifeline

Assistance Plan and a no-frills rate could help to mitigate the negative impact of a rate

increase. Lifeline currently provides up to a $10.50 per month credit toward local service

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for qualifying low-income subscribers. Several possibilities were considered for a no-frills

rate that would provide an affordable alternative for those customers who only wished to

have a basic level of service.

The Commission’s report was filed with the Legislature and the Governor on

February 15, 1999. During the 1999 Legislative session, no action was taken to rebalance

telecommunications rates in Florida.

MULTITENANT ENVIRONMENT REPORT

A multitenant environment (MTE) where a landlord or building owner controls access

to the telecommunications’ equipment area or other related facilities in a structure may

constitute a barrier to competition. A tenant in an MTE should have reasonable access to

any telecommunications company, and a telecommunications company should have

reasonable access to a tenant; landlords should not impede access to competitive

telecommunications service. Equally important, it is unacceptable for a LEC to use its

incumbent position to limit an ALEC’s ability to market its services.

The pace of competition and outcome of negotiations between telecommunications

providers, landlords, and tenants for access to MTEs is not acceptable to all participants.

Some ALECs have experienced difficulty in negotiating acceptable financial and physical

access arrangements with landlords and LECs. LECs have both obligations associated with

carrier of last resort (COLR) responsibilities, and advantages associated with being the

incumbent, monopoly provider. Landlords and property owners are protective of their

constitutional rights to the exclusive use and possession of their property. Their concerns

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about physical access to their facilities by multiple telecommunications companies are

related to safety, security, time of access, liability, use of space, and limitations on available

space.

In response to Chapter 98-277, Section 5, Laws of Florida, the FPSC submitted a

report to the Legislature in February 1999 that considered the promotion of a competitive

communications market to end users, consistency with any applicable federal

requirements, landlord property rights, rights of tenants, and other considerations relevant

to multitenant environments. The report addressed six specific issues, including the

definition of a multitenant environment, definition of multitenant environment

telecommunications service, definition of demarcation point, conditions for physical access,

compensation, and jurisdiction. The FPSC report recommended that the following

standards for review should apply in negotiating access or in determining whether a denial

of access is reasonable:

1. Tenants, landlords, and telecommunications providers should make every

reasonable effort to negotiate access to a tenant requesting service.

2. A landlord may charge a utility or tenant the reasonable and nondiscriminatory costs

of installation, easement, or other costs related to providing service.

3. The tenant should be responsible for obtaining all necessary easements.

4. The landlord may impose conditions reasonably necessary for the safety, security,

and aesthetics of the property.

5. A landlord may not deny access to space or conduit, previously dedicated to public

service, if that space or conduit is sufficient to accommodate the facilities needed

for access.

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6. A landlord may not charge a fee solely for the privilege of providing

telecommunications service in an MTE.

AREA CODE RELIEF

In Florida and around the country, the demand for telephone numbers has been

growing at an increasing rate due to inefficient number allocation, customer growth and the

rising use of fax machines, pagers, wireless phones and second lines. In order to provide

more telephone numbers, new area codes must be introduced. Area codes are in finite

supply, which places a premium on designing plans that use numbers efficiently, while

trying to minimize the impacts on customers and carriers. However, on April 2, 1999 the

FPSC filed a petition with the FCC seeking a grant of authority to implement number

conservation measures in order to address Florida specific issues.

Status of Florida Area Codes

Florida has experienced unprecedented area code growth over the last 10 years.

Prior to 1988, there were only three area codes in Florida; by 1999 that number has

increased to 13. Being restricted to a three-digit NXX code, each area code has a limited

number of telephone combinations at its disposal. In each NPA (area code), there are 792

NXX codes that can be assigned for use, which translates to 7,920,000 available telephone

numbers. Thus, Florida's 13 current area codes provide for 102,960,000 assignable

numbers. When an area code reaches its exhaust point or when nearly all the NXX codes

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T ab le 2 -1

IM P LE M E N T A T IO N o f A R E A C O D E SN ew A rea C ode S p lit F rom D a te

941 813 M ay 1995954 305 S ep tem ber 1995352 904 D ecem ber 1995561 407 M ay 1996850 904 June 1997786 305 Ju ly 1998727 813 F ebrua ry 1999321 407 N ovem ber 1999863 941 M ay 2000

have been assigned, area code relief is necessary. The traditional approach to providing

area code relief is through a “geographic split,” whereby the area covered by the existing

area code is split into two sections. One section retains the old area code, while the other

section receives the new area code. The other alternative is an overlay, which occurs

when two area codes serve the same geographic area.

Area code relief began to take place in 1988 in Florida with the 407 area code being

split from 305. The next wave of area code relief began in 1995 and continues to this day.

The table below summarizes the implementation of area codes since 1995:

The date referred to in the above table was/is the starting date for mandatory use of the

new area code. While adding numerous area codes in recent years, the problem of number

exhaust sti l l

exists. Table 2-2

represents area

codes currently

in use, the

planned year of

relief, and the

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Table 2-2

STATUS of RELIEF FOR FLORIDA'S AREA CODESArea Code Exhaust Year Status305 (Keys) 1999 Relief will be required soon!305/786 2003 Relief will be required soon!

352 2010 N/A321/407 2004 Permissive 7 and 10 digit dialing starts on 4/1/99 and mandatory

dialing starts on 12/1/99.321 (Brevard) 2008 Permissive dialing starts on 11/1/99 and mandatory dialing

starts on 10/1/2000.561 2002 Hearing scheduled: 3/23/2000 in Boca Raton and 3/24/2000 in

West Palm Beach. Technical hearing: 4/18-19/2000 inTallahassee.

727 2004 Relief will be required soon!813 2004 Relief will be required soon!850 2009 N/A904 2001 Hearings scheduled: 1/26/2000 in Deltona and St. Augustine

and 1/27/2000 in Jacksonville and Lake City. Technical hearing: 5/18-19/2000 in Tallahassee.

941 2002 A split relief plan has been approved by the Commission. Inlandareas will get the 863 area code. Permissive dialing starts on9/20/1999 and the mandatory dialing starts 5/22/2000.

954 2002 Hearing scheduled: 1-19/2000 in Ft. Lauderdale. Technical hearing: 2/11/2000 in Tallahassee.

current status.

As seen in Table 2-2, numerous area codes will need relief plans to begin in the

latter half of 1999 and 2000. Hearings are scheduled in the 561, 904, and 954 area codes

within the next year. Of the 13 area codes in effect today, 10 are projected to need relief

within the next decade. Because area codes and NXX codes are in finite supply, the FPSC

realizes the urgency to develop number conservation measures to better utilize the

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available telephone numbers. Exhibit 1 on the preceding page shows the Area codes used

today in Florida and their geographic location. Staff is conducting a workshop on October

20, 1999 to analyze the results of a number utilization survey and to discuss the new

interim authority granted by the FCC.

Florida’s Petition to the FCC

At the March 30, 1999 Agenda Conference, the Commission approved filing a

petition with the FCC requesting permission to implement numbering conservation

measures. Currently, the FCC and the North American Numbering Plan Administrator

(NANPA) have sole regulatory authority over the assignment and distribution of area codes.

The FPSC petition focused on Florida-specific problems and asked for an expedited

decision for grant of authority to implement numbering conservation measures.

The first issue addressed in the petition was the reservation of 20 NXX codes in the

Monroe County section of the 305 area code on January 6, 1998. Initial calculations

showed the NXX codes being sufficient to last until 2012. One year after the reservation

of the NXX codes, the NANPA informed the FPSC the numbers had been exhausted,

forcing an extraordinary jeopardy situation. An extraordinary jeopardy situation occurs

when the actual demand for NXX codes will exceed the supply during the relief planning

period.

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Exhibit 1

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The second issue in the petition dealt with extraordinary jeopardy being declared by

the NANPA in the 305, 561, 941, and the 954 area codes. Under the existing system for

issuing telephone numbers to LECs, ALECs, wireless providers, and paging companies,

a complete NXX is issued. For example, if a paging company files a request for telephone

numbers, upon being approved, an entire NXX code will be assigned to that one company.

The paging company then will have sole possession of 10,000 available numbers (NXX-

0000 to NXX-9999). Because a company is assigned a complete NXX code, number

utilization may not be efficient. To illustrate this point, at the time of the petition, in the 305

area code, 39% of the available telephone numbers were utilized; in the 561 area code,

35% were utilized; in the 941 area code, 37% were utilized; and in the 954 area code, 50%

were utilized. This situation is a natural consequence of the present system of issuing

telephone numbers in blocks of ten thousand.

The FPSC requested authority to implement the following actions:

C institute thousand-block number pooling instead of the traditional ten-thousand

block,

C implement sharing of NXX codes in rate centers,

C revise rationing measures and institute NXX lotteries to allow the FPSC to prolong

the life of existing area codes,

C reclaim unused and reserved central office codes and maintain the current central

office code rationing measures for at least six months after implementation of area

code relief plans,

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C expand deployment of permanent number portability and implement unassigned

number porting,

C implement rate center consolidation.

The FPSC also requested that the FCC direct the NANPA to:

C Update the Central Office Code Utilization Survey (COCUS) report quarterly, instead

of annually. Quarterly data would provide a more current basis of planning for area

code relief.

C Establish code allocation standards to more efficiently manage numbering

resources.

In the petition the FPSC requested that the FCC expressly grant the FPSC authority to

require wireless carriers to provide the necessary COCUS data and any other information

needed to carry out proper planning.

On September 15, 1999, the FCC made its decision concerning the petition and

released an Order. With certain caveats, the FCC approved the Florida petition and granted

interim authority with the exception of three requests. The FCC did not approve the

Commission’s requests to: (1) implement unassigned number porting, (2) expand

deployment of local number portability, and (3) direct NANPA to conduct COCUS quarterly.

COMPETITIVE CARRIERS’ PETITION

In December 1998, the Florida Competitive Carriers Association (FCCA), on behalf

of various industry groups and competitive local exchange companies, filed a Petition of

Competitive Carriers for Commission Action to Support Local Competition in BellSouth’s

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Service Territory. Docket No. 981834-TP was opened to address this petition. In the

petition, the FCCA requested the following relief from the Commission:

C Establishment of a generic BellSouth UNE pricing docket to address issues affecting

local competition,

C Establishment of a Competitive Forum to address BellSouth operations issues,

C Establishment of third-party testing of BellSouth’s OSS,

C Initiation of a rulemaking proceeding to establish expedited dispute resolution

procedures applicable to all local exchange carriers.

Later in December 1998, BellSouth filed a Motion to Dismiss the FCCA’s Petition with

prejudice. In January 1999, the FCCA filed their Response in Opposition to BellSouth’s

Motion to Dismiss.

At the FPSC Agenda Conference on March 30, 1999, the Commission denied

BellSouth‘s Motion to Dismiss. In addition, the Commission denied the FCCAs’ request to

initiate a rulemaking proceeding to establish expedited dispute resolution procedures for

resolving interconnection agreement disputes. However, the Commission granted the

remaining parts of the petition. Specifically, the Commission established a formal

administrative hearing process to address UNE pricing, including UNE combinations and

deaveraged pricing of unbundled loops. The Commission also directed that workshops on

OSS issues be conducted concurrently, in an effort to resolve OSS operational issues.

These workshops were held on May 5-6, 1999. In addition, a formal administrative hearing

track was established to address collocation and access to loop issues, as well as costing

and pricing issues.

Pricing of UNEs

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Docket No. 990649-TL was opened to deal with the issues involving pricing of UNEs

that were raised in the FCCA Petition. This docket will address UNE deaveraging, UNE

combinations, and nonrecurring charges. Deaveraging refers to where more than one rate

is established for the same service or offering, as opposed to a single rate made available

in all areas. Where rates are deaveraged, they typically are designed to reflect differences

in the cost of providing the service, due to such factors as density, distance and the like.

In Phase I, efforts will be focused on “how” (e.g., how to accomplish deaveraging)

and “what” (e.g., which UNEs should be deaveraged) kinds of issues; these are largely

policy issues and will be dealt with in a hearing scheduled for December 15-17, 1999. It is

anticipated that an order will be issued in March 2000.

In Phase II, the incumbent LECs will make certain filings, in compliance with the

decisions made in the Commission’s Phase I order, which will be scrutinized at a hearing

probably commencing in the fall of 2000.

Access to Loops

Several companies contended BellSouth was restricting access to collocation in its

central offices and filed petitions with the Commission to order BellSouth to allow

collocation. In response to the petitions BellSouth filed requests for waivers contending that

adequate floor space was not available for collocation in certain central offices. On March

31, 1999, the FCC released its First Report and Order and Further Notice of Proposed

Rulemaking (FNPRM), FCC # 99-48 which mandates certain collocation practices by LECs,

concerning types of equipment, alternative collocation arrangements, security, space

preparation cost allocation, provisioning intervals, and space exhaustion. BellSouth filed

27

and was granted a continuance in the collocation waiver dockets in order to comply with

the FCC order. BellSouth subsequently granted the requests for collocation by the ALECs

who had filed the petitions, and has since withdrawn its waiver requests.

On March 12, 1999, a petition was filed by ACI Corp. asking the FPSC to investigate

collocation procedures practiced by BellSouth, GTE Florida, and Sprint-Florida to determine

if these procedures are in compliance with TA 96. Being similar to the collocation issues

that arose earlier in Docket Number 981834-TP, the two dockets were combined. The

FPSC issued an order on September 7, 1999 establishing initial procedures and guidelines

for collocation. A hearing is scheduled in January 2000 to address other collocation issues

with a resolution to the issues projected for mid-year 2000.

Operational Support System (OSS) Issues

On May 28, 1999, the FCCA and AT&T Communications of the Southern States filed

a Motion for Independent Third Party Testing of BellSouth’s OSS. They argued that the

deficiency in BellSouth’s OSS has been a significant barrier to ALEC entry into the local

market. BellSouth filed its Response to this Motion on June 16, 1999. That same day,

FCCA and AT&T filed a Supplement to the Motion for Third Party Testing. On June 17,

1999, ACI Corp. filed a Motion to Expand the Scope of Independent Third Party Testing.

On June 28, 1999, BellSouth responded to the Supplement filed by the FCCA and AT&T.

On June 29, 1999, BellSouth responded to ACI’s Motion to Expand the Scope of

Independent Third Party Testing.

FCCA argued that much time has been spent trying to evaluate the performance of

BellSouth’s OSS on the basis of testimony offered by BellSouth and the ALECs, instead

of through the direct, impartial, and knowledgeable examination of the OSS by an

28

independent third party. They stated that thorough testing by an independent third party

will, on a nondiscriminatory basis, isolate points where the OSS fail to perform properly, so

that the OSS can be corrected quickly, thereby speeding the competitive process.

BellSouth argued that the FCCA/AT&T plan would involve a long and arduous series

of hearings and debate at each stage of the process that would ensure that bickering would

continue for months, if not years, before testing ever got underway. BellSouth also

contended that its OSS systems were being tested in Georgia and since customers in

Florida use the same systems, there would be no need to require separate tests for

Florida.

The Commission agreed with BellSouth that the extent of ALEC involvement

proposed in the FCCA/AT&T petition could delay the third party testing process. The

Commission did not agree, however, that we should simply use the results of the third party

testing currently underway in Georgia.

In its June 17, 1999, Motion to Expand the Scope of Independent Third Party

Testing, ACI requested that the testing proposed by AT&T and FCCA be expanded to also

evaluate the ability of ALECs to receive real-time, electronic information about the physical

characteristics of the loops, such as: 1) loop length; 2) wire gauge; 3) the presence and

number of repeaters, load coils, pair gains, and digital added main lines; 4) the presence

of digital loop carrier systems; and 5) the presence, location on the loop and cumulative

length of bridge taps on each loop. ACI argued that this information should be available to

carriers before they decide whether to order a particular loop.

BellSouth argued that ACI’s Motion raised questions beyond the scope of OSS.

BellSouth noted that ACI’s Motion focused on high speed data networks and DSL-capable

29

loops. BellSouth argued that these issues are currently before the FCC and that ACI has

an opportunity to address its concerns to the FCC. BellSouth did not believe that this

Florida proceeding was the proper forum for the issues raised by ACI.

The Commission agreed with BellSouth that the issues raised by ACI appeared to

pertain more to actual services and products of BellSouth than to how BellSouth’s services

and products are provisioned to ALECs. As such, the Commission concluded that, at least

preliminarily, third-party testing should not be expanded to cover the items identified by

ACI.

While BellSouth contended its OSS testing in Georgia was sufficient, the

Commission had concerns over the independence and the scope of the test. Accordingly,

the Commission ordered that a proposal for a third-party OSS testing plan be developed

for Florida that more closely resembled the tests conducted in New York and Pennsylvania.

Under this approach, a third-party testing agency works diligently with the Commission to

develop a master testing plan, with the Commission staff playing a vital role to ensure the

independence and objectivity of the testing. The Commission also believed it was

imperative that OSS testing include a review of the processes associated with BellSouth’s

establishment and maintenance of business relationships with the ALECs.

The third-party testing will be conducted in two phases. First, a test plan is being

developed by a third-party vendor with oversight from the Commission; the plan is

scheduled to be completed by November 15, 1999. If the test plan is approved and the

Commission decides to go forward with the actual testing, the second phase will be the

implementation of the testing plan developed in phase one. A third-party vendor will be

selected and will be expected to evaluate the ability of an ALEC, with the available

30

documentation and support from BellSouth, to develop OSS interface systems and

software to provide for each OSS function, and to use such systems and software to

provide telecommunications services. The findings of phase two will be reported to the

Commission by the third-party conducting the testing.

31

CHAPTER III: STATUS OF LOCAL COMPETITION

Section 364.386, Florida Statutes, requires the Commission to report annually to the

Governor and the Legislature on the status of competition in the telecommunications

industry in Florida, with emphasis on competitive entry into the local services market.

The first section of this chapter is devoted to the industry assessment and specifically

addresses the six points outlined in Section 364.386(1), Florida Statutes.

In addition to the industry update, the Commission is required by a 1997 amendment

to Section 364.161(4), Florida Statutes, to maintain a file of all complaints by ALECs

against LECs regarding timeliness and adequacy of service. The information included

must recap how and when each complaint was resolved. The second portion of this

chapter is devoted to meeting that requirement.

In preparation for the report, we requested data from the ALECs and LECs to

determine the extent of competitive entry. The ALEC data request consisted of questions

primarily designed to discern which companies were providing basic local service in Florida,

the exchanges and type(s) of customers being served, the method(s) of providing service,

and their primary business. The LEC data request focused on revenues, customer

demographics, and number of resold access lines. Both data requests solicited opinions

and suggestions from each company as to possible actions the Florida Public Service

Commission or the Legislature should take to foster competition in the local exchange

markets in Florida and sought their comments on obstacles or impediments to the growth

of local competition they had experienced in the state.

Since the 1998 report, Florida has seen meaningful increases in competitive entry,

32

but predominantly for business customers. As of June 30, 1999, 265 entities were

certificated as ALECs, with 80 serving over 555,000 access lines. In contrast, the 1998

report disclosed that 191 entities were certificated as ALECs, with 51 serving nearly

200,000 access lines.

STATUS OF LOCAL SERVICE COMPETITION THROUGHOUT FLORIDA

Chapter 364.386(1), Florida Statutes, mandates that the Commission examine the

following points in analyzing the status of competition in Florida:

(1) The overall impact of local exchange telecommunications competitionon the continued availability of universal service.

(2) The ability of competitive providers to make functionally equivalentlocal exchange services available to both residential and businesscustomers at competitive rates, terms, and conditions.

(3) The ability of customers to obtain functionally equivalent services atcomparable rates, terms, and conditions.

(4) The overall impact of price regulation on the maintenance ofreasonably affordable and reliable high-quality telecommunicationsservices.

(5) What additional services, if any, should be included in the definition ofbasic local telecommunications services, taking into account advancesin technology and market demand.

(6) Any other information and recommendations which may be in thepublic interest.

Each point will be addressed in the following discussion.

(1) The overall impact of local exchange telecommunications competition on the

33

continued availability of universal service.

Universal Service (US) is the longstanding concept that a specified set of

telecommunications services should be available to all customers at affordable rates.

Chapter 364.025, Florida Statutes, provides guidelines for the maintenance of US

objectives with the introduction of competition in the local exchange market. Until January

1, 2001, the incumbent local exchange companies are required by Section 364.025 (1),

Florida Statutes, to furnish basic local exchange telecommunications service within a

reasonable time period to any person requesting such service within a company’s service

territory.

As of May 1999, 93.1% of Florida households had local telephone service,

compared to a national annual average of 94.0%. (Telephone Subscribership in the United

States, Federal Communications Commission, May 1999.)

In meeting the requirements of Section 364.025(4), Florida Statutes, the

Commission submitted its report, Universal Service in Florida, to the Governor and the

Legislature in December 1996. In 1998, the FPSC revisited this issue at the direction of the

Legislature. In the resulting report, Universal Service and Lifeline Funding Issues,

submitted to the Legislature in February 1999, we stated that “although the potential for a

LEC to experience competitive erosion of its high-margin customers while retaining its high-

cost (and perhaps below-cost) customer base is a real concern, the Commission has not

discerned any such major impact to date.” (p.27) As addressed later in this chapter, our

research indicates that local exchange competitive entry in Florida has experienced

considerable gains in the last year. As stated in the February 1999 report, it is probable that

34

the absence to date of any adverse impact on LEC provision of universal service may be

due to strong underlying growth in access lines and minutes of use; while the LECs may

be losing some market share, they still have the dominant share of an increasing market.

(2) The ability of competitive providers to make functionally equivalent local

exchange services available to both residential and business customers at

competitive rates, terms, and conditions.

The FPSC staff surveyed the 265 ALECs that were certificated as of July 1999. Of

the 181 responses received, 80 were actually providing service in Florida. As a part of the

data request, the ALECS were asked to identify obstacles they believed were impeding the

growth of local competition in Florida. Responses were received from both those ALECS

actually providing service and those who have not entered the local market. Many

respondents expressed similar concerns on how the FPSC and the Legislature could

promote competition. Their observations as to perceived obstacles may be categorized into

entrepreneurial issues, pricing issues, and service/technical issues.

The entrepreneurial issues involve a few key components: time, personnel and

financial considerations. Several ALECs responded that they have not had sufficient time

to develop local services. Some ALECs provide niche services such as data or Internet

dial-up services and do not have the interest or the expertise required to provide local voice

services. Some ALECs responded they are a small business with no initiative to serve

statewide or provide service to all customers due to the limitations in their size or

resources. Additionally, many ALECs believe the LECs’ credit requirements are irrational

35

and prohibit many companies from actively providing services. Before a LEC will provide

services to an ALEC, a letter of credit showing the financial position of the ALEC must be

submitted. If insufficient resources or a lower than acceptable credit rating is apparent, the

LEC may require the ALEC to provide a payment equal to several months of service before

the LEC will provide the ALEC services.

The pricing issues raised by ALECs involve two key components in the provision of

local competition: resale discounts and LEC charges for OSS cost recovery. Numerous

ALECs indicated that resale discounts are minimal, and excessive rates are being

assessed by certain LECs for OSS cost recovery.

Numerous ALECs indicated that resale discounts are slim and are lower in Florida

than in most states, leaving profit margins minimal at best. The federal Telecommunications

Act of 1996 (TA 96) requires that LECs offer for resale any telecommunications service

they provide to subscribers who are not telecommunications carriers. The Act states that

state commissions are to determine resale rates based on a LEC’s retail rates, excluding

any costs which will be avoided by selling at wholesale rather than retail. Of the responding

ALECs, several companies are providing service strictly through resale to a niche market.

This niche market is characterized by prepaid local service with toll blocking, offered at

relatively high rates to customers to whom the LECs will not provide service. This type of

service will be discussed later in the report.

The second concern over pricing issues is charges for OSS cost recovery. While the

Commission has not authorized OSS cost recovery in any arbitration, LECs are attempting

to recover these costs in negotiated agreements. Some LECs are assessing charges to

recover their costs incurred in developing interfaces used by ALECs to access the LEC’s

36

legacy OSS systems. Many ALECs complained that in addition to the LEC assessing them

non-recurring service initiation charges, they also charge non-recurring OSS cost recovery

charges. Moreover, ALECs contend that the LECs’ interfaces to the OSS systems

themselves are unreliable.

Third, some ALECs stated that LECs are causing them delays in providing services

and requested that the Commission take action to ensure that LECs provide

nondiscriminatory access to the full range of OSS for pre-ordering, ordering, provisioning,

maintenance, repair and billing enjoyed by the LEC. The ALECs also indicated a need to

hold LECs accountable for the actions they have promised and the services requested.

Although just over 100 ALECs who responded to the data request stated they were

not currently providing voice-grade telecommunication services in Florida, the majority

indicated they intended to do so in the future, with most anticipating entry some time in the

upcoming 18 months. Only 13 respondents indicated they have no intention to provide local

services. A few indicated they will be offering DSL services in the near future, while some

will be offering data, ATM, or frame relay service. For example, the Lake Wellington

Professional Center has no intention of providing local services but does offer

telecommunication services to tenants through a PBX system as a condition of leasing

space in their building. The City of Lakeland (Lakeland Electric) responded they have no

intention to offer telecommunications services to the public, but only to provide services

to other city divisions and departments. While a few companies responded they will not

provide local services to consumers, there is reason to believe this is the minority of new

competitive entrants.

37

(3) The ability of customers to obtain functionally equivalent services at

comparable rates, terms, and conditions.

As of June 30, 1999, 80 ALECs reported they are providing some form of local

service in Florida. Table 3-1 lists each ALEC, the type of customers it serves, how its

service is provided, and the geographic area it serves.

Of these 80 companies, 44 reported that they have entered through resale, ten

through the use of their own facilities, two combining their own facilities with resale, four

combining UNEs with their own facilities, and 12 using a combination of methods. In

addition to the companies listed above, eight other companies are providing service;

however their responses were filed as confidential.

From reviewing responses to the ALEC data request and numerous ALEC/LEC

38

ALECs PROVIDING SERVICE Table 3-1

ALEC Service Provided To: Method Geographic Areas Served1-800-Reconex residential resale statewide2nd Century Communications business resale TampaA1 Mobile Tech residential resale not providedAA Tel-Com residential resale West Palm Beach, MiamiALLTEL subsidiaries N/A N/AAlternative Telephone residential resale Gainesville, Ocala, Orlando, Ft. MyersAmerican Dialtone residential resale St. PetersburgAnnox residential resale statewideAppliance and TV Rentals residential resale Port St. LucieArrow Communications residential & business combination Miami, Ft LauderdaleAT&T business combination Miami, Ft LauderdaleAtlantic Telecommunication Systems residential & business resale Central and Southeast FloridaAxsys residential & business resale East Coast FloridaBellSouth BSE residential & business facilities Tampa, St. Petersburg, GainesvilleBellSouth Telecommunications residential & business facilities OrlandoBiz-Tel business combination Miami, Orlando, TampaBudgetTel Systems residential resale MiamiCity of Lakeland self not provided LakelandComm Svc Centers business facilities Pompano BeachComUSA residential resale Daytona BeachCRG (Network One) business resale PensacolaDPI Teleconnect not provided resale not providedEagle Communications business resale Jacksonville, Miami, OrlandoEasy-Tel residential resale not providedExcelLink Communications residential resale statewideExpress Title residential & business resale PensacolaEZ Talk Communications residential resale not providedFastConnect residential resale statewideFlorida Digital Network business facilities - UNEs Jacksonville, Miami, OrlandoGlobal-NAPS business facilities MiamiGTECC business resale Ft LauderdaleHale and Father (Network Plus) residential & business resale Orlando, Miami, West Palm BeachHart Communications residential resale North FloridaHyperion Comm. Of Florida business not provided Jacksonville, Miami, OrlandoHyperion of Jacksonville business not provided Jacksonville, Miami, OrlandoIntermedia business facilities - UNEs statewideInteTech residential & business facilities - resale Jacksonville, Tallahassee, GainesvilleITC DeltaCom business confidential Miami, Jacksonville, Gainesville, Pensacola

interconnection agreements, it is a reasonable assumption that ALECs using resale, either

in its entirety or in combination with ALEC owned facilities, should be able to provide

service functionally equivalent to that available from the incumbent LEC.

39

ALECs PROVIDING SERVICE Table 3-1

ALEC Service Provided To: Method Geographic Areas ServedKMC Telecom residential & business combination Tallahassee, Ft Myers, PensacolaKnology residential & business facilities Panama CityLocal Line America residential resale statewideMCI business combination Miami, Orlando, TampaMCI Metro Access business combination Miami, Orlando, TampaMedia One Communications residential facilities Jacksonville, Ft LauderdaleMGC Communications residential & business facilities - UNEs Ft LauderdaleMicrosun Telecommunications residential & business resale Miami, Ft. Lauderdale, Boca RatonNational Phone residential & business resale Ocala, Ft Myers, OrlandoNational Tel business facilities - UNEs Ft Lauderdale, OrlandoNavigator Communications residential resale South FloridaNetwork Telephone residential & business resale statewideNewSouth Communications business facilities Orlando and TampaNextlink business combination Miami, Ft. Lauderdale, West Palm BeachNuStar Communications residential & business resale not providedOmnicall residential & business resale statewideOrlando Telephone Co. residential & business facilities - resale OrlandoPaeTec business combination not providedParkLink Communications business resale Tallahassee, Gainesville, Tampa, OrlandoPhones for All residential resale statewidePinnacle Telecom residential resale Central and South FloridaQuick-Tel Communications residential & business resale Tallahassee Reconnex residential resale statewideREI Communications residential & business resale Southwest FloridaSouthern Telemanagement residential & business resale statewideSprint business combination statewideSupra Telecommunications residential & business resale Miami, Ft LauderdaleTCG South FL business combination Miami, Ft LauderdaleTeleCom Plus residential resale statewideTeligent business facilities Jacksonville, Orlando, MiamiTel-Link residential resale statewideThe Mobile Phone Co. residential & business resale Boca Raton, Miami, Ft LauderdaleThe Telephone Co. of Central FL business confidential OrlandoTime Warner Connect residential & business resale OrlandoTime Warner Telecom business facilities Orlando, TampaTTI business combination Miami, Orlando, TampaUniversalCom residential & business resale Destin, Ft Walton beachUS Telco residential resale statewideUSA Telephone residential & business not provided Miami, Ft LauderdaleUSLEC business not provided Ft Lauderdale, Miami, JacksonvilleWinStar Wireless business facilities Miami, Tampa, St. PetersburgWTI business combination Miami, Orlando, Tampa

40

Table 3-2

LOCAL RATES FOR SELECTED ALECS IN VARIOUS EXCHANGES ALEC Rate LEC Rate

ALEC Exchange\LEC Residential Business Residential BusinessUniversalCom Winter Park $9.15 $20.16 $10.23 $24.03

Sprint-Florida1-800-Reconex Tallahassee $63.45 n/a $9.65 $21.75

Sprint-FloridaMGC Communications Ft Lauderdale $9.50 $26.00 $10.65 $29.10

BellSouthBoca Raton $9.50 $26.00 $10.30 $28.00BellSouth

Knology Panama City $11.70 $26.84 $8.80 $23.85BellSouth

Intermedia Daytona Beach $8.24 $24.90 $9.15 $24.90BellSouth

Miami $9.59 $29.10 $10.65 $29.10BellSouth

Tampa n/a $29.90 $11.81 $29.90GTEFL

InteTech Gainesville $9.27 $26.10 $9.15 $24.90BellSouth

Jacksonville $9.27 $26.10 $10.30 $28.00BellSouth

Tallahassee $9.68 $18.00 $9.65 $21.75Sprint-Florida

LocalLine America Tallahassee $44.95 n/a $9.65 $21.75Sprint-Florida

Reselling services is just someone other than the LEC selling the LEC’s services under a

different name. The name is different, but the services are essentially the same.

Table 3-2 shows the business and residential rates of selected ALECs for various

exchanges and the corresponding LEC rate. In most areas where consumers have a choice

of local exchange providers, service can be obtained at rates comparable to the LEC

serving that area.

Also shown in Table 3-2 is a niche market provider, LocalLine America. LocalLine

41

America provides services through resale to customers on a prepaid basis at rates higher

than the LEC, but to customers who cannot obtain services from the LEC for various

reasons.

The customer’s ability to obtain a comparable or a more favorable rate will depend

on the pricing scheme chosen by the ALEC. Our research indicates that at least four

distinctive pricing schemes are being used by ALECs: discount rates, parallel rates, niche

market rates, and bundled service rates. While some ALECs use a discounting approach,

the ALEC rates shown in Table 3-2 on balance are comparable to those charged by the

LECs; the prices charged appear to be discounted in a range of 10% to 15% below the

LEC’s (excluding those ALEC rates which are actually higher than those of the LEC).

Given the apparent prevalence of this ALEC/LEC pricing relationship, even if the LEC was

able and opted to increase its basic rates, it is questionable whether residential customers

would actually see any decreases in the prices available to them.

Numerous companies, such as Intermedia Communications and Orlando Telephone

Company, have matched their local business rates to the comparable LEC rates in the

area. As shown in Table 3-2, Intermedia’s business rates coincide with BellSouth’s and

GTE’s rates for the same locations. Setting rates parallel to the LEC is more prevalent for

providers targeting business customers. In the residential market, fewer ALECs offer

services at parallel rates.

In the residential market, numerous ALECs are focusing their pricing strategies on

a niche market. As touched on earlier, this market is defined by customers who have had

problems obtaining telephone service from the LEC and may have little choice but to

choose alternative telephone services if service is desired. These customers often have

42

been disconnected by the LEC for non-payment or late payments, bad credit history, or a

lack of proper identification. This type of service often is priced well above the local LEC

rate and has numerous restrictions on service, including toll blocking and no access to

directory assistance. Based on their rates and blocking requirements, two carriers which

may be operating under this strategy are 1-800-Reconex, ($63.45 per month), and Local

Line America ($49.95 per month) for residential service.

A third pricing strategy involves an ALEC combining local and a fixed amount of long

distance service with other features, such as unlimited Internet access, at one rate.

Network Telephone is such a company operating under this strategy. From their response

to the ALEC data request received on August 26, 1999, they offer a variety of service

packages ranging from one to two local lines, custom calling features, 800 number, 60

minutes of free long distance, and unlimited Internet access.

In addition to determining whether customers are able to obtain services at

comparable rates, the FPSC must also examine if customers can obtain services on

comparable terms and conditions. Because ALECS are not required to provide services

under the same requirements as the LECs, assessing customers’ ability to obtain services

can be difficult. One important point is that ALECs do not necessarily target all customers;

some focus only on residential customers and others offer service strictly to business

customers. ALECs also do not provide service under the same rules as the LECs are

required to, but they are required to have a price list on file if they offer basic local service.

Absent any evidence to the contrary and given the continuing ALEC market share growth,

we can only conclude that terms and conditions offered by ALECs are at least comparable

to that offered by the LECs.

2 While customer testimony in the context of the “Fair and Reasonable Rate Study” indicatedsome concern over service, the FPSC customer complaint tracking data is probably a more reliableindicator of overall trends in customer satisfaction or dissatisfaction.

3Justified - The nature of the complaint against the LEC was in violation of a Commission rule.

43

(4) The overall impact of price regulation on the maintenance of reasonably

affordable and reliable high-quality telecommunications services.

Pursuant to Section 364.051 (2)(a), Florida Statutes, rate caps for basic local

telephone service are to remain in place until January 1, 2000 for price-regulated LECs with

fewer than 3 million access lines, and until January 1, 2001 for BellSouth. The increase

in competitive entry has not diminished significantly the positions of the three largest price

regulated LECs, BellSouth, GTEFL, and Sprint-Florida, who still serve over 90% of the

access lines in the state. Services that were reasonably affordable prior to price cap

legislation continue to be affordable.

While there was concern service would deteriorate under the current price cap

regulatory environment, FPSC customer complaint tracking does not indicate service has

deteriorated2. In terms of customer complaints, the number of justified3 complaints filed

with the Commission against these three companies have remained steady or have fallen

(see Table 3-3).

44

Table 3-3

Customer Complaints - Justified* Company 1999 (July year to date) 1998 1997

BELLSOUTH 63 214 228GTE 24 116 186

SPRINT 21 57 39* Justified = action of the utility was an infraction of a Commission rule

In addition to the number of complaints remaining steady or falling, the ratio of

complaints to the number of access lines has been declining. From the period January 1,

1999 to July 31, 1999, the number of infractions per 1,000 access lines was 0.0097 for

BellSouth, 0.0101 for GTEFL, and 0.0103 for Sprint-Florida. In the first seven months of

1998, the number of infractions per 1,000 access lines was .0382 for BellSouth, .0861 for

GTEFL and .0226 for Sprint-Florida.

(5) What additional services, if any, should be included in the definition of basic

local telecommunications services, taking into account advances in

technology and market demand.

At this time there should be no additions or deletions to the definition of basic

service. However, the definition of basic local service differs between LECs and ALECs.

The LEC-provided basic local service includes ". . . voice grade, flat-rate residential and

flat-rate single-line business local exchange services which provide dial tone, local usage

necessary to place unlimited calls within a local exchange area, dual tone multi-frequency

dialing (touch dialing), and access to the following: emergency services such as ‘911,’ all

locally available interexchange companies, directory assistance, operator services, relay

services, and an alphabetical directory listing." (Section 364.02(2), Florida Statutes)

45

In contrast, the list of services included in ALEC-provided basic local service is not

nearly as extensive. The ALEC provided basic local service includes ". . . access to

operator services, ‘911’ services, and relay services for the hearing impaired." The ALEC

is also required to offer a flat-rate pricing option. (Chapter 364.337(2), Florida Statutes)

Thus, the ALEC does not have to provide touchtone dialing, directory assistance, or

directory listings as part of its basic local service.

(6) Any other information and recommendations which may be in the public

interest.

No additional information is provided at this time.

SUMMARY OF STATUS OF LOCAL COMPETITION THROUGHOUT FLORIDA

The past year has seen a moderate rise in competitive activity in Florida. As of June

30, 1999, 80 ALECs reported they were providing local service in Florida. Several ALECs

responding to the Commission’s data request stated that in order to achieve a level playing

field, issues such as larger resale discounts, and a common and continuous OSS system

by the LECs, need to be addressed for competition to flourish. With nearly 29% of the

certificated ALECs providing service and numerous others responding to the Commission’s

data request of their intentions to offer service in the next year, it is apparent that the

ALECs are making strides to take full advantage of the opportunities offered to them by TA

96. The next section of this chapter will provide a detailed overview of the exchanges

entered by ALECs and the customers being served.

46

STATUS OF LOCAL SERVICE COMPETITION IN FLORIDA BY EXCHANGE

In order to obtain an accurate depiction of the status of local competition, the

Commission formulated and distributed data requests to both ALECs and LECs to

determine the level of market penetration. These questions requested the number of

access lines each competitor has by exchange and by type of customer -- residential,

business, or both -- to whom the provider is offering service.

Table 3-4 lists those exchanges where an ALEC is providing service, the number

of ALECs serving business and residential customers in the exchange, and the percentage

of the total lines in the exchange served by the ALEC (if not proprietary). It should be noted

that the number of ALECs serving a given exchange is based on where the ALECs stated

they provide service; however, ALECs are not required to offer service exchange-wide and

many likely do not, preferring instead to target certain submarkets. A percentage range of

ALEC lines served is used in order to avoid revealing data that may be considered

confidential.

47

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

Alachua 1 > 0 to 1% 0

Alford 0 0

Alligator Point 0 0

Altha 1 > 0 to 1% 0

Apalachicola 1 > 0 to 1% 0

Apopka 6 > 0 to 1% 5 5% to 10%

Arcadia 4 > 0 to 1% 1 > 0 to 1%

Archer 3 > 0 to 1% 1 > 0 to 1%

Astor 1 > 0 to 1% 2 > 0 to 1%

Avon Park 2 > 0 to 1% 1 1% to 5%

Baker 1 > 0 to 1% 0

Baldwin 2 > 0 to 1% 1 1% to 5%

Bartow 3 1% to 5% 2 1% to 5%

Belle Glade 5 1% to 5% 3 > 0 to 1%

Belleview 4 > 0 to 1% 3 1% to 5%

Beverly Hills 2 > 0 to 1% 2 > 0 to 1%

Big Pine Key 0 1 > 0 to 1%

Blountstown 1 > 0 to 1% 0

Boca Grande 2 > 0 to 1% 0

Boca Raton 10 > 0 to 1% 13 10% to 15%

Bonifay 2 > 0 to 1% 2

Bonita Springs 5 > 0 to 1% 1 > 0 to 1%

Bowling Green 2 > 0 to 1% 0

Boynton Beach 6 > 0 to 1% 6 10% to 15%

Bradenton 3 1% to 5% 3 1% to 5%

Branford 1 > 0 to 1% 1 > 0 to 1%

Bristol 1 > 0 to 1% 0

Bronson 4 > 0 to 1% 1 > 0 to 1%

Brooker 0 0

Brooksville 5 > 0 to 1% 4 1% to 5%

Bunnell 3 > 0 to 1% 2 1% to 5%

Bushnell 5 > 0 to 1% 2 > 0 to 1%

Callahan 0 2

Cantonment 1 > 0 to 1% 2 1% to 5%

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

48

Cape Haze 2 > 0 to 1% 1 > 0 to 1%

Cape Coral 3 > 0 to 1% 3 1% to 5%

Carrabelle 0 0

Cedar Key 0 2 1% to 5%

Celebration 0 0

Century 0 1 > 0 to 1%

Chattahoochee 1 > 0 to 1% 0

Cherry Lake 1 0

Chiefland 4 1% to 5% 3 1% to 5%

Chipley 5 > 0 to 1% 1 >0 to 1%

Citra 0 0

Clearwater 4 1% to 5% 5 10% to 15%

Clermont 5 > 0 to 1% 2 1% to 5%

Clewiston 3 > 0 to 1% 1 > 0 to 1%

Cocoa Beach 3 > 0 to 1% 5 5% to 10%

Cocoa 5 > 0 to 1% 5 1% to 5%

Coral Springs 10 > 0 to 1% 7 20% to 25%

Cottondale 1 > 0 to 1% 0

Crawfordville 0 0

Crecent City 0 0

Crestview 3 > 0 to 1% 2 5% to 10%

Cross City 2 > 0 to 1% 0

Crystal River 4 > 0 to 1% 2 > 0 to 1%

Dade City 4 > 0 to 1% 3 1% to 5%

Daytona Beach 9 > 0 to 1% 7 1% to 5%

DeBary 5 > 0 to 1% 4 5% to 10%

Deerfield Beach 10 > 0 to 1% 8 15% to 20%

DeFuniak Springs 3 > 0 to 1% 1 1% to 5%

Deland 5 > 0 to 1% 3 1% to 5%

DeLeon Springs 2 > 0 to 1% 2 1% to 5%

Delray Beach 11 > 0 to 1% 7 5% to 10%

Destin 1 5% to 10% 1 10% to 15%

Dowling Park 0 0

Dunnellon 4 > 0 to 1% 2 1% to 5%

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

49

East Orange 4 > 0 to 1% 2 1% to 5%

Eastpoint 0 0

Eau Gallie 5 > 0 to 1% 4 1% to 5%

Englewood 3 1% to 5% 1 1% to 5%

Eustis 3 > 0 to 1% 2 1% to 5%

Everglades 0 2 >0 to 1%

Fernandina Beach 3 > 0 to 1% 2 1% to 5%

Flagler Beach 0 1 > 0 to 1%

Florahome 1 > 0 to 1% 0

Florida Sheriff's Boy's 0 0

Forest 2 > 0 to 1% 2 1% to 5%

Freeport 2 > 0 to 1% 2 > 0 to 1%

Frostproof 2 1% to 5% 1 1% to 5%

Ft. Meade 3 > 0 to 1% 1 1% to 5%

Ft. Myers 7 > 0 to 1% 5 1% to 5%

Ft. Lauderdale 17 1% to 5% 13 15% to 20%

Ft. Pierce 5 > 0 to 1% 8 1% to 5%

Ft. Walton Beach 6 > 0 to 1% 4 5% to 10%

Ft. White 1 > 0 to 1% 1

Ft. Myers Beach 3 > 0 to 1% 1 > 0 to 1%

Gainesville 10 > 0 to 1% 6 1% to 5%

Geneva 4 > 0 to 1% 2 > 0 to 1%

Glendale 0 0

Graceville 2 > 0 to 1% 1 1% to 5%

Grand Ridge 0 0

Green Cove Springs 2 > 0 to 1% 2 > 0 to 1%

Greensboro 0 0

Greenville 1 1% to 5% 0

Greenwood 1 1% to 5% 0

Gretna 0 0

Groveland 3 > 0 to 1% 2 1% to 5%

Gulf Breeze 2 1% to 5% 4 5% to 10%

Haines City 3 1% to 5% 2 1% to 5%

Hastings 0 0

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

50

Havana 1 0

Hawthorne 2 > 0 to 1% 1 1% to 5%

High Springs 0 0

Hilliard 0 0

Hobe Sound 1 >0 to 1% 5 5% to 10%

Holley-Navarre 1 > 0 to 1% 2 5% to 10%

Hollywood 11 > 0 to 1% 13 10% to 15%

Homestead 5 > 0 to 1% 8 5% to 10%

Homosassa 3 > 0 to 1% 1 > 0 to 1%

Hosford 0 0

Howey-in-the-Hills 0 2 1% to 5%

Hudson 3 1% to 5% 2 1% to 5%

Immokalee 3 > 0 to 1% 1 > 0 to 1%

Indian Lake 2 > 0 to 1% 0

Indiantown 0 1 > 0 to 1%

Interlachen 0 0

Inverness 5 > 0 to 1% 2 1% to 5%

Islamorada 2 > 0 to 1% 3 25% to 30%

Jacksonville Beach 3 > 0 to 1% 3 1% to 5%

Jacksonville 9 1% to 5% 10 10% to 15%

Jasper 0 0

Jay 1 >0 to 1% 0

Jennings 0 1 1% to 5%

Jensen Beach 3 > 0 to 1% 4 5% to 10%

Julington 0 3 5% to 10%

Jupiter 5 > 0 to 1% 8 15% to 20%

Keaton Beach 0 0

Kenansville 0 3 35% to 40%

Keystone Heights 0 1 > 0 to 1%

Key Largo 2 > 0 to 1% 4 10% to 15%

Key West 4 > 0 to 1% 5 1% to 5%

Kingsley Lake 0 1 25% to 30%

Kissimmee 5 > 0 to 1% 8 5% to 10%

La Belle 4 > 0 to 1% 1 > 0 to 1%

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

51

Lady Lake 4 > 0 to 1% 2 1% to 5%

Lake Buena Vista 0 0

Lake Butler 1 > 0 to 1% 0

Lake City 7 > 0 to 1% 3 1% to 5%

Lake Placid 3 > 0 to 1% 1 1% to 5%

Lake Wales 4 > 0 to 1% 2 1% to 5%

Lake Worth 1 1% to 5% 0

Lakeland 4 1% to 5% 3 1% to 5%

Largo 1 > 0 to 1% 1 > 0 to 1%

Laurel Hill 0 0

Lawtey 1 > 0 to 1% 0

Lee 2 > 0 to 1% 0

Leesburg 6 > 0 to 1% 4 1% to 5%

Lehigh Acres 3 > 0 to 1% 1 > 0 to 1%

Live Oak 0 1 > 0 to 1%

Luraville 0 0

Lynn Haven 4 1% to 5% 2 > 0 to 1%

Macclenny 0 0

Madison 2 1% to 5% 3 > 0 to 1%

Malone 0 0

Marathon 2 > 0 to 1% 3 10% to 15%

Marco Island 1 > 0 to 1% 2 > 0 to 1%

Marianna 3 > 0 to 1% 2 1% to 5%

Maxville 0 0

Mayo 0 0

McIntosh 0 0

Melbourne 8 > 0 to 1% 7 10% to 15%

Melrose 0 >0 to 1% 0 1% to 5%

Miami 14 > 0 to 1% 15 10% to 15%

Micanopy 1 > 0 to 1% 1 1% to 5%

Middleburg 4 > 0 to 1% 1 1% to 5%

Milton 3 > 0 to 1% 2 1% to 5%

Molino 1 >0 to 1% 0

Monticello 1 > 0 to 1% 1 > 0 to 1%

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

52

Montverde 2 > 0 to 1% 3 25% to 30%

Moore Haven 0 1 > 0 to 1%

Mount Dora 3 > 0 to 1% 3 1% to 5%

Mulberry 3 1% to 5% 2 > 0 to 1%

Munson 0 0

Myakka 2 1% to 5% 1 > 0 to 1%

Naples 5 > 0 to 1% 3 > 0 to 1%

New Port Richey 3 1% to 5% 3 1% to 5%

New Smyrna Beach 3 > 0 to 1% 2 1% to 5%

Newberry 3 1% to 5% 2 1% to 5%

North Cape Coral 3 > 0 to 1% 2 > 0 to 1%

North Dade 8 > 0 to 1% 10 25% to 30%

North Fort Myers 4 > 0 to 1% 2 > 0 to 1%

North Key Largo 0 2 45% to 50%

North Naples 2 > 0 to 1% 2 > 0 to 1%

North Port 3 1% to 5% 2 > 0 to 1%

Oak Hill 2 > 0 to 1% 0

Ocala 7 > 0 to 1% 4 1% to 5%

Ocklawaha 2 > 0 to 1% 2 > 0 to 1%

Okeechobee 2 > 0 to 1% 2 1% to 5%

Old Town 3 > 0 to 1% 2 1% to 5%

Orange City 3 > 0 to 1% 3 1% to 5%

Orange Park 4 > 0 to 1% 3 1% to 5%

Orange Springs 1 > 0 to 1% 0

Orlando 9 > 0 to 1% 13 15% to 20%

Oviedo 4 > 0 to 1% 9 5% to 10%

Pace 1 3 5% to 10%

Pahokee 3 > 0 to 1% 2 1% to 5%

Palatka 4 > 0 to 1% 3 1% to 5%

Palm Coast 4 > 0 to 1% 2 > 0 to 1%

Palmetto 4 1% to 5% 2 1% to 5%

Panacea 0 0

Panama City 4 1% to 5% 3 1% to 5%

Panama City Beach 4 > 0 to 1% 2 > 0 to 1%

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

53

Paxton 1 > 0 to 1% 0

Pensacola 5 1% to 5% 5 5% to 10%

Perrine 5 > 0 to 1% 8 5% to 10%

Perry 1 > 0 to 1% 0

Pierson 1 > 0 to 1% 1 > 0 to 1%

Pine Island 3 > 0 to 1% 2 > 0 to 1%

Plant City 4 1% to 5% 5 5% to 10%

Polk City 2 1% to 5% 2 > 0 to 1%

Pomona Park 0 1 > 0 to 1%

Pompano Beach 11 1% to 5% 10 10% to 15%

Ponce de Leon 2 > 0 to 1% 1 1% to 5%

Ponte Vedra Beach 2 > 0 to 1% 2 1% to 5%

Port Charlotte 6 > 0 to 1% 2 > 0 to 1%

Port St. Joe 1 > 0 to 1% 0

Port St. Lucie 6 > 0 to 1% 6 1% to 5%

Punta Gorda 3 > 0 to 1% 2 > 0 to 1%

Quincy 1 > 0 to 1% 1 > 0 to 1%

Raiford 0 0

Reedy Creek 2 > 0 to 1% 5 5% to 10%

Reynolds Hill 0 1 1% to 5%

Salt Springs 1 > 0 to 1% 0

San Antonio 4 > 0 to 1% 0

Sanderson 0 0

Sanford 7 > 0 to 1% 8 1% to 5%

Sanibel-Captiva Island 0 0

Santa Rosa Beach 1 > 0 to 1% 1 > 0 to 1%

Sarasota 4 1% to 5% 5 1% to 5%

Seagrove Beach 0 0

Sebastian 3 > 0 to 1% 6 10% to 15%

Sebring 4 > 0 to 1% 3 1% to 5%

Shalimar 2 > 0 to 1% 1 > 0 to 1%

Silver Springs Shores 2 > 0 to 1% 2 1% to 5%

Sneads 0 0

Sopchoppy 0 0

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

54

Spring Lake 0 1 > 0 to 1%

St. Augustine 3 > 0 to 1% 4 1% to 5%

St Cloud 4 > 0 to 1% 5 1% to 5%

St. Johns 0 0

St. Marks 0 0

St. Petersburg 6 1% to 5% 7 5% to 10%

Stark 2 > 0 to 1% 2 1% to 5%

Stuart 5 > 0 to 1% 7 1% to 5%

Sugarloaf Key 0 3 45% to 50%

Sunny Hills 1 > 0 to 1% 0

Tallahassee 7 > 0 to 1% 6 1% to 5%

Tampa 5 5% to 10% 8 5% to 10%

Tarpon Springs 5 1% to 5% 5 5% to 10%

Tavares 2 > 0 to 1% 3 1% to 5%

The Beaches 0 1 > 0 to 1%

Titusville 3 > 0 to 1% 6 5% to 10%

Trenton 2 > 0 to 1% 2 > 0 to 1%

Trilacootchee 3 > 0 to 1% 1 1% to 5%

Tyndall 0 1 > 0 to 1%

Umatilla 3 > 0 to 1% 2 > 0 to 1%

Valparaiso 3 > 0 to 1% 2 > 0 to 1%

Venice 4 1% to 5% 2 1% to 5%

Vernon 1 > 0 to 1% 0

Vero Beach 7 > 0 to 1% 7 1% to 5%

Waldo 0 0

Walnut Hill 0 0

Wauchula 2 > 0 to 1% 2 1% to 5%

Weekiwachee Springs 4 > 0 to 1% 4 1% to 5%

Welaka 2 > 0 to 1% 0

Wellborn 0 0

West Palm Beach 9 > 0 to 1% 11 5% to 10%

West Kissimmee 4 > 0 to 1% 7 20% to 25%

Westville 0 0

Wewahitchka 1 > 0 to 1% 1 > 0 to 1%

Table 3-4

EXCHANGES WITH AN ALEC PROVIDER

EXCHANGE

Total ALEC

Res. Providers % of Res. Access Lines

ALEC Providers

Total ALEC

Bus. Providers

% of Bus. Access Lines

ALEC Providers

55

White Springs 0 0

Wildwood 3 > 0 to 1% 2 > 0 to 1%

Williston 3 > 0 to 1% 2 1% to 5%

Windermere 2 > 0 to 1% 3 5% to 10%

Winter Garden 4 > 0 to 1% 5 5% to 10%

Winter Haven 3 1% to 5% 2 1% to 5%

Winter Park 8 > 0 to 1% 7 5% to 10%

Yankeetown 3 > 0 to 1% 1 1% to 5%

Youngstown-Fountain 1 > 0 to 1% 1 > 0 to 1%

Yulee 1 > 0 to 1% 1 1% to 5%

Zepher Hills 3 1% to 5% 4 5% to 10%

Zolfo Springs 1 > 0 to 1% 0

56

Table 3-5

SUMMARY OF FLORIDA EXCHANGES WITH AND WITHOUT AN ALEC PROVIDERExchanges with One ALEC Provider 41

Exchanges with Two ALEC Providers 28

Exchanges with Three of More ALEC Providers 166

Exchanges Without an ALEC Provider 46

Exchanges Without a Residental ALEC Provider 67

Exchanges Without a Business ALEC Provider 81Total Exchanges in Florida 281

Table 3-6

EXCHANGES WITH THE MOST ALEC PROVIDERSEXCHANGE TOTAL ALEC PROVIDERS*

Residential BusinessBoca Raton 10 13 16

Delray Beach 11 8 15Ft Lauderdale 16 13 22

Gainesville 10 6 12Hollywood 11 13 16

Homestead 5 8 11Jacksonville 8 10 13

Miami 14 16 22North Dade 8 10 13

Orlando 9 13 17West Palm Beach 9 11 13

*Total does not add across columns because an ALEC provider may offer service to both business and residentail customers in the exchange

Tables 3-5 and 3-6 summarize the number of exchanges where ALECs are providing basic

local service, and in what areas there are the most ALECs providing service.

In determining the level of competitive entry, the number of access lines the

competitors are actually serving may be more significant than the number of competitors

in an exchange. The total number of business and residential access lines served by the

80 ALECs is 555,172 compared to 51 ALECs serving 194,142 lines a year ago. In

comparison, the total number of access lines served by the LECs is over 10.7 million. The

4A Glossary of Telecommunications Terms, FCC Public Service Division, 1998.

57

total number of business access lines served by all competitive entrants combined is

438,639 and the total number of residential access lines is 97,230, compared to 143,959

business and 50,183 residential access lines reported in 1998. The LECs serve

approximately 3.2 million business lines and 7.5 million residential access lines. ALEC

business lines increased from approximately 4.3% in 1998 to 12.2% of the total Florida

business lines in 1999; their share of the total residential access lines increased from

around .7% in 1998 to 1.3% in 1999. The competitors’ share of the total access lines

served has risen to approximately 5.0%, compared to 1.8% in 1998.

The ALECs continue to focus on the heavily populated markets with large

concentrations of customers. Exhibit 2 on the next page shows the location of Florida’s 10

Local Access and Transport Areas (LATAs) and Market Areas. A LATA is defined by the

FCC as a “[A] continuous local exchange area which includes every point served by a local

phone company within an existing community of interest.”4 As shown in Table 3-7, Florida’s

more populous LATAs also have the most competition.

58

Table 3-7

ALEC PROVIDERS BY LATAExchanges without Area Codes Serving

LATA Exchanges in LATA Competitive Entrant the LATADaytona 9 0 904

Ft Myers Market Area 29 2 863, 941Gainesville 51 4 352Jacksonville 41 18 904

Orlando 23 2 407, 321Panama City 37 11 850Pensacola 23 4 850Southeast 31 0 305, 561, 786, 954

Tallahassee Market Area 12 5 850Tampa Market Area 25 0 727, 813, 941

One exchange in Florida without a competitive entrant is in the Mobile LATA

The table reveals that more densely populous areas, such as the Daytona and

Southeast LATAs and the Tampa market area, have competitive entrants in every

exchange. Almost every exchange in the Ft. Myers market area and the Gainesville,

Orlando, and Pensacola LATAs is served by at least one ALEC. However, in the less

densely populated areas, such as the Jacksonville and Panama City LATAs and the

Tallahassee market area, many more exchanges do not have a competitive local provider

present.

Since last year’s status of competition report, ALECs have increased significantly

their share in the business market. In total, ALECs now have market shares that exceed

10% in 28 exchanges, including exchanges in the Ft. Lauderdale, Miami and West Palm

Beach areas on the east coast of Florida, and the Jacksonville and Orlando areas in the

North and Central part of Florida, respectively.

59

Exhibit 2

60

As for residential competition, few exchanges are experiencing any significant penetration.

Only 39 exchanges have over 1% of the access lines served by a competitive provider, and

only the Destin and Tampa exchanges have over 5% of the total access lines provided by

competitive providers. Several ALECs responded to the Commission’s data request that

they have no intention of serving residential customers due to low profit margins. Of the

ALECs that said they were providing service, 23 ALECs provide services only to residential

customers, 29 ALECs provide services only to business customers, and 25 ALECs provide

to both. While the number of providers serving each group of customers is relatively the

same, ALECs have captured five times the number of access lines in the business market

than in the residential market. Business customers generate significantly greater revenues

than residential customers, which allows an ALEC to establish a revenue base more rapidly

by focusing on business customers.

ALECs have certain advantages over the incumbent LEC because they are not

required to serve all customers and are not carriers of last resort. Thus, an ALEC has

complete freedom to choose to whom and where they wish to provide service. LECs often

accuse ALECs of “cream skimming,” or pinpointing customers who generate high amounts

of revenue and winning over their business from the LEC. Although a competitor can be

operating in an exchange and have customers, they are not actually competing for all

customers at that time.

This year’s exchange-by-exchange data shows ALECs have made significant gains

in the number of business access lines served, while the gains in residential access lines

has been at a much slower pace. With respect to exchanges being served by a competitive

entrant, numerous exchanges experienced growth in the number of providers since last

year’s report. While we reported in 1998 that 55 of the 281 exchanges had no ALECs

61

Table 3-8

ALEC OWNED SWITCHESNumber of Number of

City Switches City SwitchesBoca Raton 1 Palm Bay 1

Ft. Lauderdale 5 Pompano Beach 2Jacksonville 5 Sarasota 1

Lakeland 1 St. Petersburg 1Maitland 1 Tallahassee 1Miami 11 Tampa 6

North Dade 1 West Palm Beach 1Orlando 7 Winter Haven 1Oviedo 2 Winter Park 1

offering services, this statistic has decreased to where 47 of the 281 exchanges are not

served by an ALEC provider in 1999. The exchanges where competitive providers are

offering service is expanding, and providers appear not to be concentrated only in the

urban areas. In the 1998 report, ALECS that served three or more exchanges accounted

for 172. In 1999, this number has decreased to 166. Given the increase in the number of

competitive providers, the data suggests a shifting from multiple competitive providers in

one exchange to competitive entrants spreading to other geographic areas in the state.

According to the Telcordia Local Exchange Routing Guide (LERG), many ALECs in

Florida have installed their own switches and increasingly are becoming facilities-based

instead of relying on resale for providing services. The report lists 27 ALECs owning 49

switches in various locations across the state. Whether all of the switches are operational

or have traffic flowing through them is unknown. Table 3-8 shows the cities

where the

switches are

located and

the number

62

in use by ALECs.

The table shows that ALECs have chosen to locate their switches in the more

populous areas of the state, including the Miami, Orlando, and Tampa market areas. The

27 ALECs owning switches serve primarily business access lines in Florida. Companies

owning switches include Intermedia, Global-NAPS, National Telecommunications of

Florida, USLEC, KMC Telecom, and MediaOne. Several companies have installed DMS

500 switches, which have the capability of serving in excess of 100,000 access lines per

switch. According to the LERG report, Florida Digital Network, Global-NAPS, Intermedia,

MGC Communications, National Telecommunications, and Teligent all have installed DMS

500 switches in Florida.

PREPAID LOCAL SERVICE

Of the 80 ALECs known to be providing services, 44 provide services to residential

customers while 48 provide services to business customers. Based on the responses

received, it appears that 26 of the residential providers offer prepaid local telephone service

that usually has mandatory toll-blocking and no access to directory assistance. The price

per month for this form of residential service ranges from $24.95 per month from ExcelLink

Communications to as high as $63.45 per month from Reconex. The vast majority charge

somewhere in the neighborhood of $50.00 per month. Responses to our survey indicates

that a significant number of residential customers in Florida are receiving this type of

service. Several of these providers’ primary businesses are not local telephone services,

but paging, cellular and PCS, appliance and television rentals, and title loans. Of the

paging, cellular and PCS providers, some offer packages combining paging, cellular, and

63

local telephone services into one monthly bill. Other companies offering this type of service

appear to be focusing on a particular type of customer and capitalizing on the opportunity

to provide services to less than creditworthy consumers.

A few firms are offering prepaid local service to business customers. Rates range

from $49.00 per month with USA Telephone to $79.95 with Quick-Tel Communications.

Seven companies provide business prepaid services but to a very limited number of

customers.

HOW FLORIDA COMPARES TO THE REST OF THE UNITED STATES

The FCC tracks data about the extent and pattern of local competition throughout

the United States; its most recently released report is titled Local Competition: August 1999

and contains information as of December 31, 1998. A key difference between our research

and that conducted by the FCC is the methods used to collect data. In our report, we

requested data from the LECs as well as the ALECs. The FCC obtains the bulk of its

information through a voluntary survey submitted to the major LECs, as well as certain

revenue data derived from federal universal service reporting forms.

According to the FCC’s report, as of year-end 1998 approximately 2% of LEC lines

nationwide were reported as being resold by ALECs, and ALEC providers accounted for

2.4% of the total local telecommunications market revenues. Both of these statistics had

increased significantly from prior reports. This comports with our data, which reflect that

nearly 2% of the Florida access lines of BellSouth, GTE Florida and Sprint are being resold

to ALECs. Further, while the FCC does not obtain access line data from ALECs, they

report that investment analysts estimate that between 2%-3% of the total nationwide

64

access lines are being served by ALECs. In contrast, as reported earlier in this chapter,

ALECs in Florida have been more successful in obtaining customers and our analysis

indicates that they now serve some 5.0% of all access lines in the state.

LIMITATIONS IN PRECEDING ALEC MARKET ANALYSES

Although on balance we believe that the preceding ALEC market share analyses are

quite reasonable, various caveats should be noted about our analysis. Our data

compilation was based on responses received to our ALEC data requests, and thus is only

as complete as the responses submitted by the ALECs. As noted earlier, of the 265

ALECs certificated as of June 30, 1999, 181 ALECs responded, of which 80 indicated they

were providing service.

Our data request asked those ALECs who were providing service to indicate the

number of access lines they were serving, separated between residential and business

lines, by exchange. Not all respondents answered in the format requested. A group of

companies identified the number of residential and business lines they were serving, but

the data was not provided by exchange. Since these lines could not be attributed to

specific exchanges, the ALEC market shares by exchange are likely understated. (These

lines were added in the totals, however.) A second group of respondents only provided the

number of residential and business customers they are serving. For these ALECs, we

made the very conservative assumption of a single access line for each customer. Here,

both the ALEC overall shares and shares by exchange would tend to be understated.

Due to concerns about possible under-reporting of lines served by ALECs, we sent

a second data request to the incumbent LECs asking them to identify the number of

65

residential and business resold lines they were providing, by ALEC, by exchange.

(Unfortunately, not all LECs were able to provide data on resold lines split between

residence and business.) We then compared the number of resold lines to the number of

ALEC-reported lines, by exchange. Where the LEC-reported resold lines exceeded the

ALEC-reported lines, we computed the difference between the two amounts. Summing

across all Florida exchanges yields an estimate of an additional 19,303 access lines.

Adding in this adjustment, we estimate that ALECs in Florida serve a total of 555,172

access lines, or 5.0% of overall access lines.

COMPLAINTS FILED BY ALECs AGAINST LECs

A 1997 amendment to Section 364.161(4), Florida Statutes, requires that the report

include a discussion of all complaints filed by alternative local exchange companies

(ALECs) against incumbent local exchange companies (LECs). Table 3-9 lists and

describes the ALEC complaints against LECs over the past year. Last year the Commission

received 25 complaints from ALECs; 18 have been resolved while the other seven are

scheduled for upcoming hearings.

Table 3-9 List of Complaints Filed by ALECs Against LECs

(Includes formal and informal Complaints as of September 30, 1999)

66

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enda

on

4/18

/00.

SUM

MA

RY

72

As of July 1999, ALECs are providing service to approximately 5.0% of the total

access lines in Florida compared to 1.8% in 1998. Florida has approximately 11.3 million

access lines of which approximately 555,000 of them are being served by ALECs. Of those

11.3 million access lines in Florida, 7.6 million are residential and 3.7 million are business.

Competitive entrants are serving 97,230 residential and 438,639 business access lines. In

percentages, ALECs serve 1.3% of the residential and 12.2% of the business access lines.

In 1998 there were 10.8 million access lines in Florida, 7.5 million residential and 3.3 million

business. ALECs in 1998 served approximately 194,000 total lines, 50,000 residential and

144,000 business or captured .7% of the residential and 4.3% of the business market. It

is evident that competitive entrants have made significant gains in the local

telecommunications market in Florida over the past year.

CHAPTER IV: CONCLUSION

From the data collected in preparing this report, it is apparent that ALECs are

viewing Florida as an attractive market. The number of ALECs certificated increased from

73

191 to 265 since the last report and the number of exchanges served by an ALEC provider

has increased from 226 to 235. Another trend derived from the data is ALECs are

beginning to provide services throughout the state instead of focusing on the metropolitan

areas.

This year’s data reflects that 80 ALECs are serving 555,172 access lines to both

residential and business customers. This accounts for 5.0% of the total access lines located

in Florida.

While nearly 100 ALECs responded they were not currently offering services, nearly

half expressed their intentions to offer end-user services before the end of year 2000.

Traditionally, new entrants offered services through reselling LEC services, but many non-

providing ALECs indicated they were in the process of obtaining their own equipment such

as purchasing a switch. Business customers can obtain service from ALECs in 71% of the

state’s exchanges, at rates, terms and conditions that presumably are at least comparable

to those offered by the incumbent LECs. While local service from ALECs is available to

residential customers in 76% of Florida’s exchanges, it appears that there are at least two

residential submarkets. First, some ALECs offer residential service which, while it may be

bundled with other offerings, essentially is a substitute for the LEC’s residential service, and

typically is available at rates, terms and conditions similar to those offered by the LEC.

Second, certain ALECs have targeted their efforts to offering prepaid service with toll

restriction to residential consumers who likely would not be able to obtain service from the

LEC because they previously had been disconnected or have poor credit history. Here,

although these ALECs are apparently satisfying a need in the market, there is no truly

comparable LEC service offering against which to compare the ALEC service.

A review of customer complaints revealed that LECs are continuing to maintain

74

affordable, high-quality services. Over the past few years, the total number of justified

customer complaints against the LECs has remained steady or has fallen.

The Commission will continue to facilitate entry into the market while ensuring

neither new entrants nor incumbent LECs are unduly advantaged. The Commission will

continue to exercise its authority to resolve issues of both a generic nature and those which

are specific to two competing carriers.

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

!nterprise America, Inc.

C 1-800-RECONEX, Inc.

2001 Telecommunications Inc.

2nd Century Communications, Inc.

C A 1 Mobile Tech, Inc.

75

C A.R.C. Networks, Inc.

C AA Tele-Com

ABCConnnect

Accelerated Connections, Inc.

Access Communications - First Coast

C Access Network Services, Inc.

Access Point, Inc.

Adelphia Telecommunications of Florida, Inc.

Advanced Cellular Corporation

Advent Consulting and Technology, Inc.

AirTime Technologies, Inc.

All Kinds Cashed, Inc.

C ALLTEL Communications, Inc.

C Appliance & TV Rentals, Inc.

C Alternative Phone, Inc.

C Alternative Telecommunications Services, Inc.

C America's Tele-Network Corp.

C American Dial Tone

C American MetroUtilities Corporation/Florida

American Phone Corporation

C Ameritech Communications International, Inc.

C Annox, Inc.

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

C Arrow Communications, Inc.

C AT&T

ATI Telecom, Inc.

C Atlantic Telecommunication Systems, Inc.

Atlantic.Net Broadband, Inc.

76

Atlas Communications, Ltd.

Axessa

C Axsys, Inc./Tel Ptns.

C BellSouth BSE, Inc.

C BellSouth Telecommunications, Inc.

C Biz-Tel Corporation

BlueStar Networks, Inc.

C BTI

BudgeTel Systems, Inc.

Budget Phone, Inc.

C Business Technology Systems, Inc.

C Buy-Tel Communications, Inc.

C Cable & Wireless, Inc.

Capital Exploration

Cellular One of Southwest Florida

CFT INC.

City of Lakeland

City of Ocala

City of Tallahassee

Collins Communications Corporation

C ComTel, Inc. Of South Carolina

COI-SR

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

C Comcast MH Telephony Communications of Florida, Inc.

C Comcast Telephony Communications of Florida, Inc.

Communication Service Centers

C Compass Telecommunications Incorporated

C Computer Business Sciences, Inc.

77

C Comscape Communications, Inc.

C COMUSA, Inc.

C Coral Bay Financial, Inc.

Covad Communications Company

Cox Communications

CRG International, Inc.

Cypress Telecommunications Corporation

C DPI-Teleconnect, L.L.C.

C Datacomm International Company, Ltd.

C Daytona Telephone Company

Dial & Save

C Dial Tone of Alabama, Inc.

C Dial Tone Communications Group Inc.

C Diamond Communications International, Inc.

C Direct-Tel, Inc.

C e.spire Communications, Inc.

C Eagle Telco, Inc.

C East Florida Communications, Inc.

Eastland of Orlando Telephone Corporation

Easton Telecom Services Inc.

EasyComm Corporation

Easy Tel, Inc.

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

ElectroNet Intermedia Consulting, Inc.

Electronic Technical Services (E.T.S.)

C Ernest Communications, Inc.

Everglades National Communication Network, Inc.

Excel Telecommunications, Inc.

78

C Excelink Communications, Inc.

C Express Loans

C EZ Talk Communications, L.L.C.

Fascon, Inc.

C First Touch, Inc.

C Florida City-Link Communications, Inc.

Florida Comm South

Florida Digital Network, Inc.

Florida Public Telecommunications Association, Inc.

C Florida Telephone Company

Florida Telephone Services, LLC

C Florida's Max-Tel Communications, Inc.

Focal Communications Corporation of Florida

FoxTel, Inc.

C Frontier Local Services Inc.

C Frontier Telemanagement Inc.

GCI Globalcom, Inc.

GE Capital Commercial Direct

Global NAPS, Inc.

C GNet Telecom, Inc.

Group Long Distance, Inc.

GRU Communication Service/GRUCom/GRU

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

GT Com

C GTE Communications Corporation

Guarantel, Inc.

Gulftel Communications

C Hale and Father, Inc.

79

C Hart Communications

Hayes Telecommunications Services, Inc.

HJN Telecom, Inc.

Hometown Telephone, Inc.

C Hyperion of Jacksonville, Inc.

C Hyperion Telecommunications of Florida, Inc.

C IDS Long Distance, Inc.

IE Com

C Integra Paging

C Intellicall Operator Services, Inc.

C Inter-Tel NetSolutions, Inc.

Intercontinental Communications Group, Inc.

C Interlink Telephony, Inc.

C Intermedia Communications, Inc.

C International Telcom, Ltd.

InternetU, Inc.

Interprise-Continental Fiber Technologies Alternet Data Co

C Intetech, L.C.

C ITC^DeltaCom

ITS Telecommunications Systems, Inc.

JTC Communications, Inc.

KingTel, Inc.

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

C KMC Telecom II, Inc.

C KMC Telecom Inc.

C Knology of Florida, Inc.

Lake Wellington Professional Centre

LDM Systems Inc.

80

C LEC-Link

C Level 3 Communications, L.L.C.

Local Line America, Inc.

C Mat-Tell Communications, Inc.

C MCI Metro Access Transmission Services, Inc.

C MCI Telecommunications Corporation

C MediaOne Florida Telecommunications, Inc.

Megsinet-CLEC, Inc.

C MET Communications, Inc.

Metrolink Internet Services of Port Saint Lucie, Inc.

Metropolitan Fiber Systems of Florida, Inc.

C MGC Communications, Inc.

MiComm Services, Inc.

Microsun Telecommunications, Inc.

Momentum Telecom, Inc.

National Comm Link, L.L.C.

C National Phone Corporation

C NationalTel

C Navigator Telecommunications, L.L.C.

Netcon Telcom, Inc.

NET-Tel Corporation

C Network Telephone, Incorporated

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

New Millennium Communications Corporation

C NewPhone

C NewSouth Communications Corp.

C Nextlink Florida, Inc.

C North American Telephone Network, L.L.C.

81

NorthPoint Communications, Inc.

NOS Communications, Inc.

C NOW Communications, Inc.

C NuStar Communications Corp.

Oltronics, Inc.

C Omnicall, Inc.

C OnePoint Communications

OpTel

C Orlando Digital Telephone Corporation

Orlando Telephone Company

PaeTec Communications, Inc.

C Palm Beach Telephone Company

Parklink Communications, Inc.

Philacom Inc.

C Phones For ALL

C PointeCom, Inc.

Pre-Cell Solutions, Inc.

C Priority Link

Pro Telecom, Inc.

C Progressive Telecommunications Corp.

C Public Telephone Network, Inc.

Pushbutton Paging & Communications, Inc.

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

C Quentel Communications, Inc.

C Quick-Tel Communications, Inc.

C Quintelco, Inc.

Qwest Communications Telecom Corp. (formerly LCI)

Qwest Communications Corp.

82

REI Communications

Rehook1, Inc.

Ripple Communications

SBC National, Inc.

Shands Teaching Hospital and Clinics, Inc.

C Smoke Signal Communications

Southeast Telephone Company

C Southeastern Telecommunications Service, Inc.

C Southern States Telephone, Inc.

C Southern Telemanagement Group, Inc.

C SouthNet Telecomm Services, Inc.

C Sprint Communications Company Limited Partnership

C State Phone Company

Strategic Technologies, Inc.

C Supra Telecommunications & Information Systems

T-Netix, Inc.

Talk America

C Talk Time Communications, Ltd. Inc.

Tallahassee Memorial Telephone Company

C Tallahassee Telephone Exchange, Inc.

C TCG South Florida

TDS Telecom/Quincy Telephone

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

C Tel-Link, L.L.C.

TEL3

Telaleasing Enterprises, Inc.

C Telecard Communications International, Inc.

Teleco Communications, Ltd.

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Telecommunications Service Center, Inc.

C TeleConex

C Telephone Company of Central Florida, Inc.

C Telephone One, Inc

C Teligent, Inc.

TelQuest Communications, Corp.

C Telrite

Teltrust Communications Services, Inc.

The Grand Condominium Association, Inc.

C The Mobile Phone Company

C The Other Phone Company, Inc.

The Phone Company

C Time Warner Communications

C Time Warner Connect

Tin Can Communications Company, L.L.C.

TotalTel USA Communications, Inc.

Touch 1 Communications, Inc.

TransAmerican Telephone

C Travelers Telecom Corp.

Tristar Communications

C U.S. Dial Tone, Inc.

C U.S. Telco, Inc.

APPENDIX A: ALECs CERTIFICATED as of June 30, 1999(dot represents companies having a price list on file as of June 30, 1999)

U2 Communications, Inc.

C Unicom Communications, L.L.C. (formerly Unique Communications)

UniDial Communications, Inc.

C United States Telecommunications, Inc.

C UniversalCom, Inc.

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C US LEC of Florida Inc.

US South Communications, Inc.

C US Telecom, Ltd.

USA Tele Corp.

C USA Telecom

USA Telephone Inc.

USLD Communications, Inc.

C Utilicore Corporation

VarTec Telecom, Inc. and Clear Choice Communications

C Vast-Tel Communications, Inc.

C WinStar Wireless of Florida, Inc.

C Worldlink Long Distance Corp.

World Access Communications Corp.

C World Telecommunications Services, Inc.

C WorldCom Technologies, Inc.

YourTel, Inc.

C Z-Tel Communications, Inc.

APPENDIX B: KEY FEDERAL ISSUES

AT&T CORP. v. IOWA UTILITIES BOARD

On August 8, 1996 the FCC issued its First Report and Order concerning the rules

for interconnection, unbundling and resale. The FCC defined interconnection as the

“physical linking of two networks for the mutual exchange of traffic.” The Order specified

a minimum of five points in the LEC’s network where interconnection is practical. These

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points include: 1) the line side of a local switch, 2) the trunk side of a local switch, 3) the

trunk interconnection points for a tandem switch, 4) central office cross-connect points, and

5) out-of-band signaling transfer points. The FCC defined unbundled elements as the

physical facilities of a network, together with the features, functions, and capabilities

associated with those facilities. The FCC required LECs to provide the following items on

an unbundled basis: local loops, local switching, interoffice transmission facilities, network

interface devices, signaling and call database facilities, operations support systems

functions, and operator and directory assistance facilities. The unbundled network elements

(UNEs) are to be made available at the same quality level as the LEC provides to itself.

Several LECs and state commissions, including the FPSC, appealed the FCC’s

order challenging the FCC’s authority to implement the local competition rules in TA 96

and, especially, to promulgate pricing rules. The 8th Circuit Court of Appeals ruled against

the FCC and vacated most of the FCC pricing rules, but did find that Rule 51.319 was

lawful. Rule 51.319 lists the unbundled network elements the LEC must make available to

an ALEC. The LECs argued that Rule 319 ignored TA 96's requirements regarding whether

access to proprietary elements was “necessary” and whether the lack of access would

“impair” an ALEC from providing service. The LECs also argued Rule 319 contained items

that were not network elements because they did not meet these statutory requirements.

The 8th Circuit Court’s decision was appealed to the U.S. Supreme Court (AT&T Corp. v.

Iowa Utilities Board).

On January 25, 1999, the United States Supreme Court handed down its decision

in AT&T Corp v. Iowa Utilities Board on whether the FCC has the authority to promulgate

rules on unbundled access and “pick and choose.” The Supreme Court reversed several

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of the 8th Circuit’s previous decisions and generally upheld the FCC‘s authority to

promulgate rules to implement the Act. The Supreme Court determined that Section 201(b)

of TA 96, which gives the FCC jurisdiction to pass rules and regulations necessary to carry

out the TA 96, does extend to the implementation of local competition rules. The Supreme

Court agreed with the FCC that Section 201(b) gives the FCC explicit authority to

implement the provisions of Sections 251 and 252 of the TA 96, and reversed the 8th

Circuit Court’s decision. The Supreme Court also ruled the FCC has the jurisdiction to

design a pricing method and to promulgate pricing rules.

The Supreme Court determined the FCC did not adequately review the “necessary

and impair” standards when implementing Rule 51.319, which specifies those UNEs that

LECs must provide. The Supreme Court agreed with the LECs that TA 96 required the FCC

to establish a limiting standard on the provision of UNEs. Rule 319 was vacated by the

court and remanded back to the FCC for further review.

The FCC’s “pick and choose” rule requires incumbent LECs to make available to any

requesting telecommunications carrier any individual interconnection agreement approved

by a state commission pursuant to Section 252, given the same rates, terms and conditions

produced in the agreement. The 8th Circuit vacated the pick and choose rule but the

Supreme Court reversed the 8th Circuit and reinstated the rule.

As a result of the Supreme Court’s remand of Rule 51.319, the FCC sought further

comments to determine what network elements should be included in the unbundled

access section, recognizing proprietary concerns and access to network elements that

would impair the ability of ALECs to provide services. The purpose was specifically to

interpret Section 251(d)(2) of TA 96 and which network elements should be unbundled by

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the incumbent LECs under Section 251(c)(3), TA 96. On September 15, 1999, the FCC

adopted a revised rule that omitted access to operator and directory assistance services

but otherwise retained the revised list of mandatory UNEs.

As noted above, the Supreme Court reaffirmed the FCC’s authority to promulgate

pricing rules. FCC rule 51.507(f) requires state commissions to establish at a minimum

three geographic rate zones for UNEs and interconnection that reflect cost differences. On

May 7, 1999 the FCC released an order staying its deaveraging rule. The FCC stayed its

rule until 6 months after the FCC issuance of its universal service order which implements

high-cost support for non-rural LECs.

TREATMENT OF TRAFFIC TO INTERNET SERVICE PROVIDERS

One of the more challenging issues facing regulators is whether a local

telecommunications provider is entitled to receive reciprocal compensation for traffic

terminated to an Internet service provider (ISP). Section 251(a)(5) of the

Telecommunications Act of 1996 (the Act) states that each telecommunications carrier has

“[t]he duty to establish reciprocal compensation arrangements for the transport and

termination of telecommunications.” Thus, reciprocal compensation is the payment for

transport and termination of local traffic which originates on the network of one local

exchange company and terminates on the network of another. The matter has been the

subject of petitions to the FCC as well as cases in a number of states. The FPSC has

made decisions on a case-by-case basis, but has not made a formal generic decision on

the issue.

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Nationwide, Incumbent Local Exchange Companies (LECs) have generally declined

to pay reciprocal compensation for traffic that is transported and terminated by Alternative

Local Exchange Companies (ALECs) to end-users that are ISPs. At the heart of the issue

is whether the traffic in question is local or interstate in nature. LECs argue that calls to the

Internet through ISPs do not terminate at the local provider’s premises, but connect with

multiple destinations which may cross state and national boundaries. According to them,

this would make the traffic interstate, and thus not subject to reciprocal compensation.

Parties arguing for this position cite a number of FCC orders in which reference was

made to Internet traffic as interstate. For example, in FCC Docket Number 92-18, an Order

dated February 14, 1992, at paragraph 12, stated:

Our jurisdiction does not end at the local switch, but continues to the ultimate

termination of the call. The key to jurisdiction is the nature of the

communication itself, rather than the physical location of the technology.

BellSouth argued that ISP traffic is not different from provision of service by

facilities-based interexchange carriers and resellers who use the local

network to provide interstate services.

In a case before the FPSC, statements such as these led BellSouth to place

considerable emphasis on the point of termination for a call. BellSouth’s position was that

an ALEC serving an ISP is acting like an intermediate transport carrier or conduit, not a

local exchange provider entitled to reciprocal compensation. BellSouth posited that the call

from an end user to the ISP only transits through the ISP’s local point of presence; it does

not terminate there. Thus, there is no interruption of the continuous transmission of signals

between the end user and the host computers. If this is the case, the jurisdictional

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boundaries of a communication would be determined by its beginning and ending points,

and the ending point of a call to an ISP is not the ISP switch, but rather is the database or

information source to which the ISP provides access.

However, other parties argued that this point of view misunderstands the nature of

an Internet call. The Internet is an interconnected global network of thousands of

interoperable packet-switched networks that use a standard protocol to enable information

exchange. An end user may obtain access to the Internet from an Internet service provider

by using dial-up or dedicated access to connect to the Internet service provider’s

processor. The Internet service provider, in turn, connects the end user to an Internet

backbone provider that carries traffic to and from other Internet host sites. A host is

another computer. Parties arguing that ISP traffic is local believe the ability of Internet

users to visit multiple websites at any number of destinations on a single call is a clear

indication that the service provided by an ISP is an enhanced service, not a

telecommunications service.

"Telecommunications" is defined as "The transmission, between or among points

specified by the user, of information of the user’s choosing, without change in the form or

content of the information as sent and received." (47 U.S.C. Section 153(48)) By contrast,

"information services" is "the offering of a capability for generating, acquiring, storing,

transforming, processing, retrieving, utilizing, or making available information via

telecommunications, and includes electronic publishing, but does not include any use of

any such capability for the management, control, or operation of a telecommunications

system or the management of a telecommunications service." (47 U.S.C. Sec. 153(20))

This gives rise to a notion of “severability.” Internet traffic may be severable from

5Declaratory Ruling in CC Docket No. 96-98 and Notice of Proposed Rulemaking in CC DocketNo. 99-68.

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telecommunications traffic. Thus, the call from a user to his ISP may be a local

telecommunications service, while the Internet portion is an information service. In further

support of this argument, parties have argued that, in the case of a rural customer using

an IXC to connect with an ISP, the call is clearly two parts: a long distance call, for which

LECs can charge switched access, followed by an enhanced service. If that is the case, the

local or intrastate portion of ISP traffic would remain under the jurisdiction of the states.

In its 1998 Report to Congress, the FCC seemed to recognize that the 1996 Act’s

distinction between telecommunications and information services is crucial. The FCC

noted that “Congress intended ‘telecommunications service’ and ‘information service’ to

refer to separate categories of services” despite the appearance from the end user’s

perspective that it is a single service because it may involve telecommunications

components. (Report to Congress, ¶¶56, 58) However, later FCC decisions, discussed

below, discounted this theory.

Until recently, all cases decided by the FPSC have held that ISP traffic meets the

definition of local and is subject to reciprocal compensation. However, all such cases have

been decided based on the provisions of the contracts between the parties, and what they

might have reasonably intended, based on the state of the law at the time the contracts

were entered into. While no generic decision has been made, the FPSC has demonstrated,

in comments filed with the FCC, its support for the two-call theory, holding that ISP traffic

is local.

Subsequent to initial actions by the FPSC and other state commissions, the FCC

issued an order on Inter-Carrier Compensation for ISP-Bound Traffic.5 In that Order, the

6Docket No. 990149, Petition by MediaOne Florida Telecommunications, Inc. For Arbitration of anInterconnection Agreement with BellSouth Telecommunications, Inc. Pursuant to Section 252(b) of theTelecommunications Act of 1996. FPSC Order PSC-99-2009-FOF-TP.

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FCC found that

. . . ISP-bound traffic is jurisdictionally mixed and appears to be largely

interstate. This conclusion, however, does not in itself determine whether

reciprocal compensation is due in any particular instance. . . . [P]arties may

have agreed to reciprocal compensation for ISP-bound traffic, or a state

commission, in the exercise of its authority to arbitrate interconnection

disputes under section 252 of the Act, may have imposed reciprocal

compensation obligations for this traffic. In the absence, to date, of a federal

rule regarding the appropriate inter-carrier compensation for this traffic, we

therefore conclude that parties should be bound by their existing

interconnection agreements, as interpreted by state commissions. (¶1)

As a result of this decision, some states reversed their decisions on reciprocal

compensation for ISP traffic. The FPSC has not reversed its earlier decisions. However,

in a recent arbitration decision, the FPSC declined to rule on whether ISP traffic was local

or interstate. Instead, it decided that with regard to this issue the parties should continue

to operate under the terms of a previously approved interconnection agreement between

the same parties,6 until such time as the FCC promulgates rules on ISP traffic.

Recently the FCC gave some indication that its earlier decision may be revisited.

On August 7, 1999, the FCC asked the United States Court of Appeals for the District of

Columbia Circuit to allow the FCC further opportunity to consider issues raised on appeal

7Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC DocketNo. 98-147 et al., Memorandum Opinion and Order and Notice of Proposed Rulemaking, 13 FCC Rcd15280 (1998).

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by US West with regard to advanced services. The advanced services decision dealt with

whether services such as xDSL, typically used for the provision of Internet access, is

telephone exchange access.7 On August 25, 1999, the Court granted the FCC’s request

and remanded the case back to the FCC. The arguments brought forth in determination of

this issue are identical to those in the reciprocal compensation case. However, the

significance of the voluntary remand with regard to the FCC’s earlier decision on reciprocal

compensation for ISP traffic is not clear at this time. The FPSC will continue to monitor FCC

proceedings on this matter.

The uncertainty associated with the reciprocal compensation issue could have a

substantial impact on competition in the telecommunications industry. Many ALECs

receive considerable revenues from reciprocal compensation. While cases are on appeal,

Florida LECs have not paid the outstanding amounts, although some escrow accounts

have been set up. The resulting unpaid revenues that have remained in limbo cause large

receivables to appear on the balance sheets of impacted ALECs who typically do not have

the financial resources of the larger LECs. The financial well being of a fledgling industry

may well hang in the balance until the issue is settled, at least for those amounts due from

contracts already entered into. The effects of this issue on competition in Florida may not

be known for years to come.

UNIVERSAL SERVICE

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The goal of universal support is to ensure that all households who desire

telecommunications service have access to reliable and affordable service regardless of

income-level or geographic location. During the past year, the FCC released a significant

order on high-cost funding for non-rural carriers, in response to the Joint Board’s Second

Recommended Decision, and the schools and libraries program began its second year.

FCC’s Seventh Report and Order

On November 25, 1998, the Joint Board released its Second Recommended

Decision on universal service. On May 27, 1999, the FCC released the 7th Report and

Order and Thirteenth Order on Reconsideration in CC Docket No. 96-45 which adopted

most of the Joint Boards recommendations. (The FCC also issued a Further Notice of

Proposed Rulemaking (FNPRM) at the same time.) The Order adopted a framework for

federal high-cost support mechanisms that will provide support for non-rural carriers based

on forward-looking costs in excess of the national cost benchmark and a state’s ability to

fund internally. Highlights of the Order include:

C Reiterates that forward-looking costs are the appropriate starting point for

determining support amounts and there should be a single national model to

determine forward-looking economic costs (FLEC).

C Use of a national cost-based benchmark set at a percentage of national average

FLEC of providing supported services as first step in determining support. Federal

mechanisms will support areas with per-line costs greater than this benchmark,

unless an objective indicator of a state’s resources indicates that rate comparability

can be achieved in the state without federal funding.

C States are not required to make any changes to existing intrastate support

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mechanisms to receive federal support. However, states’ ability to provide their own

universal service needs should be evaluated, with federal support available if the

state support is insufficient.

C Acknowledges joint state-federal responsibility for US support. Principals adopted

in order recognize state’s key role , and reaffirms purpose of federal mechanism as

providing support to enable states to maintain reasonably comparable rates

throughout the nation. No conditions imposed on states’ eligibility to receive federal

high-cost support.

C Methodology and principles adopted in order do not require any state to impose a

line item charge to support universal service, and do not create an entitlement for

carriers to receive any particular amount of support from new or explicit state

mechanisms.

C Adopted Joint Board’s hold-harmless provision to prevent any decreases in current

levels of per-line support. Agreed with Joint Board that hold-harmless issue should

be revisited by January 1, 2003.

C In addition to ongoing consultation by the FCC with the Joint Board, the FCC and

the Joint Board shall, on or before January 1, 2003, comprehensively re-examine

high cost mechanism implemented in the Seventh Report and Order.

The FNPRM sought comments on several remaining implementation issues including such

items as:

C the level of the national benchmark,

C the size of the area costs are averaged over in determining the level of support,

C states’ ability to support high-cost areas,

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C assurances that support distribution is being applied as intended by TA 96,

C determine the input values for the national cost model,

C determine whether the hold-harmless provision should be carrier-by-carrier or state-

by-state.

The FNPRM also suggested that it was the FCC’s intent to determine the final input values

to be used in the forward-looking cost model and to adopt an order for implementation of

the new federal cost mechanism for non-rural carriers.

Texas Office of Public Utility Counsel v. FCC

On July 30, 1999, the Fifth Circuit Court of Appeals issued its opinion pertaining to

various parties’ appeal of the FCC’ May 1997 Universal Service order (First Report and

Order), in which the court affirmed in part, reversed in part, and remanded in part, major

decisions reached previously. Major provisions include:

C The court upheld the FCC’ decision to employ the use of forward-looking economic

cost in its proposed approach for calculating support for high-cost areas.

C Various parties had challenged the FCC’ decision in the First Report and Order that

the new federal high-cost mechanism would only fund 25% of the universal service

costs. Since the FCC had recently issued its Seventh Report and Order, in which

the FCC reversed itself on this issue, the court dismissed the challenge and

dismissed it as moot.

C The FCC had previously interpreted Section 214(e) of the Act, which pertains to the

eligibility requirements for carriers to receive universal service support, in a very

narrow manner which restricted the ability of states to impose any additional

standards. The court reversed the FCC, concluding that the FCC had erred in

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prohibiting states from imposing their own eligibility requirements, especially in light

of their historical role in setting service quality standards.

C The FCC had concluded in the First Report and Order that carriers receiving low-

income universal service support could not disconnect Lifeline subscribers for

nonpayment of toll charges. The states had challenged the FCC’ authority to make

such a finding. The court agreed with the states, and reversed the FCC on this

point.

C The FCC had directed that incumbent LECs were to recover their universal service

assessments from interstate access charges. GTE had argued that this directive

violated the requirement of Section 254(e) of the Act that, prospectively, all federal

universal service support was to be explicit. The Fifth Circuit court agreed, and

reversed the FCC.

C The court upheld the FCC’ decision to subject paging and other wireless carriers to

federal universal service assessments.

C The court reversed the FCC on its previous decision to levy universal service

assessments on international revenues of interstate carriers, and remanded the

matter to the FCC for further consideration.

C The court upheld the FCC on virtually all challenges concerning the propriety of the

new schools and library program.

C In the First Report and Order, the FCC had decided that assessment on carriers for

the schools and libraries and rural health care programs should be based on

carriers’ intrastate, interstate and international revenues. The court disagreed,

reversing the FCC by concluding that ¶ 2(b) prohibits the FCC from assessing

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intrastate revenues.

Schools and Libraries

In the Twelfth Order on Reconsideration in CC Docket No. 96-45, the FCC raised

the schools and libraries’ Year 2 funding to its cap of $2.25 billion, which is to be collected

in the last two quarters of 1999 and the first two quarters of 2000. Year two of the schools

and libraries universal support began July 1, 1999. In the first year, the funding level was

$1.925 billion compared to an estimated $2.02 billion requested from participants in the

program.

ACCESS CHARGES

PICCs

Presubscribed Interexchange Carrier Charges, or “PICCs,” are per line charges

billed by certain local exchange companies to long distance carriers. Many carriers choose

to pass through the PICC charges to their customers. Local exchange companies may bill

their customers directly for PICCs if a customer has not selected a long distance carrier.

All PICCs increased effective July 1, 1999. For BellSouth, GTE Florida, and Sprint-Florida,

the PICC rates for single line residential and business customers increased from $.53 to

$1.04 per line. For BellSouth, GTE Florida and Sprint-Florida, the PICC rate for each non-

primary residential line increased from $1.50 to $2.53 per line, while the PICC rate for each

line of a multiline business increased from $2.75 to $4.31.

Subscriber Line Charge

Subscriber line charges (SLCs) are billed by the local exchange companies directly

to their retail customers. The current maximum charge allowed by the FCC for primary

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residential and single line business subscribers is $3.50. The only SLCs that changed on

July 1, 1999 were for secondary residential lines and multiline businesses. The maximum

allowable charge for secondary residential lines increased from $5.00 to $6.07. Multiline

business SLC charges vary, and were reduced by BellSouth from $8.25 to $7.90, GTE

from $9.16 to $9.02, and Sprint-Florida from $7.50 to $7.30.

X-Factor

For all interstate price cap LECs, the price ceiling for interstate access services is

adjusted annually by a measure of inflation minus a productivity factor, known as the “X-

Factor.” The current X-Factor for all LECs is currently 6.5%, which is higher than the

current inflation rate, thus causing reductions in interstate switched access rates. A recent

D.C. circuit court order was issued that questions the validity of the current 6.5% X-Factor

and ordered the FCC to provide more evidence to support the measure. A stay of the

court’s order has been granted while this matter is under review.

TRUTH-IN-BILLING

With the number of telecommunications service providers steadily increasing, so are

the number of consumer complaints. Consumers have many detailed charges on their

phone bills causing confusion over what items are necessary. Unfortunately, companies

have found ways to commit telecommunications fraud including cramming and slamming.

Cramming is when a phone company places unauthorized, misleading, or deceptive

charges on a consumer telephone bill, while slamming is switching a consumer’s chosen

long distance company without their consent. The FCC has taken numerous measures

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referred to as “truth-in-billing” to protect consumers from telecommunications bandits. In

April 1999, several new slamming rules initiated by the FCC went into effect including

limited consumer liability, verification necessary to switch a consumer’s services, and

preferred carrier freezes. The FCC has established many references on their website along

with toll-free help lines to assist consumers. The FPSC also has launched a consumer

campaign to combat these issues including media advertisements, brochures, and

references on the FPSC website.

NUMBERING ISSUES

With emerging technologies and consumers demanding new telecommunications

services such as cellular phones and pagers and the passage of TA 96 allowing ALEC

providers, the nation’s telecommunications system has been faced with the task of

providing telephone numbers to accommodate these services. Two issues pertaining to

numbering issues are discussed below: area code exhaust and local number portability.

Area Code Exhaust

The NANPA was established in 1947 by AT&T and Bell Laboratories to meet the

international standards for numbering plans. NANPA was also given the authority by the

FCC to issue NPA codes (area codes) to states and NXX codes to the incumbent LECs.

LECs use NXX codes to issue telephone numbers within an NPA code according to

NANPA guidelines. With the accelerated deployment of telecommunication technologies

beginning in the late 1980's, there has been an increasing burden on the numbering

system. It is necessary for every cellular and paging provider to issue a phone number to

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the consumer for their service to work. In order to issue a consumer a phone number, the

provider must hold an NXX code, or a pool of numbers, at his disposal. The NANPA

standard is that a complete NXX is assigned, which is a block of 10,000 numbers.

The passage of TA 96 created more of a burden on the NANPA by allowing ALECs

to provide service. When the NANPA was organized in 1947, its role was to distribute NPA

codes to one telecommunications company in any given area. Today numerous companies

are providing services in the same areas, creating demands on a system that was not

designed to accommodate these levels. Like cellular and paging providers, ALECs are

issued NXX codes in 10,000 blocks. However, assuming a ALEC provider previously has

been assigned an NXX code, and after a year in business it has 1200 working phone

numbers, the ALEC provider still has 8800 unused telephone numbers.

Since NPA and NXX codes are in limited supply, conservation is required before

there simply are no telephone numbers left to be issued. The FCC, NANPA, and several

states are working on conservation measures to prolong the life of the North American

Numbering Plan.

Local Number Portability

The purpose of Local Number Portability (LNP) is to promote competition in the local

exchange markets by allowing consumers to keep their existing telephone number when

switching local providers. The FCC allowed LECs to assess a Local Number Portability

(LNP) charge beginning in early 1999 in an effort to recover the costs of telephone number

portability in local areas. The charge is a fixed, flat rate fee and is charged only in areas

where local number portability is available. Local exchange companies are allowed, but not

required, to charge this fee for a period of up to 5 years from the date they initiated the

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charge. Currently there is no cap placed on the amount of revenue the local exchange

provider is allowed to collect, but the LNP charges are reviewed by the FCC.

APPENDIX C: EMERGING and CONVERGING UTILITY MARKETS

In today’s markets, utility companies increasingly are becoming providers of more

than one service, offering consumers choices never seen before. On a nationwide level,

AT&T is rapidly becoming one of the largest cable television providers in the country. In the

state of Florida, GTE is offering wireline, wireless and television services in the Tampa Bay

area, while BellSouth offers similar services in central Florida. Companies such as Time

Warner and Comcast have ALEC certificates, as do a few municipalities. Markets are

emerging and converging, creating more competition to the traditional local exchange

company. Utility industries with an interest in local telecommunications service include

wireless providers, cable companies, and electric companies.

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Wireless telecommunications has enjoyed significant gains in subscribership and

revenues over the last several years. In the period between 1994-1998, the Florida

Telecommunications Industry Association (FTIA) statistics show wireless providers have

increased from 15 providers holding 49 licenses in 29 market areas, to more than 40

providers holding 156 licenses covering relatively all of Florida. In 1998 there were

approximately 3.5 million wireless subscribers in Florida generating estimated revenues

of $647 million. It is estimated that in excess of 15,000 Floridians are employed in the

wireless industry, and cumulative Florida investment was $2.2 billion in 1998.

According to a Cellular Telecommunications Industry Association (CTIA) semi-

annual survey released March 31,1999, the number of wireless customers in the United

States rose 25% from the previous survey to 69.2 million customers, or 27% of the

population. The survey also indicates that there are more wireless subscribers than cable

television subscribers nationwide, 69.2 million wireless customers compared to 67 million

cable customers. While subscribership is rising, the average monthly bill is falling. The

average wireless bill in 1998 was $39.43 compared to $42.78 in 1997, representing a

decrease of 7.8%. As wireless services become more affordable, wireless may become a

viable substitute for wireline subscribers.

A second industry becoming active in providing telecommunications service is the

cable television industry. As mentioned, Time Warner and Comcast are certificated as

ALEC providers within the state of Florida, and both are providing telecommunications

services in limited markets. Time Warner currently offers business telecommunications

services in the Orlando and Tampa markets, while Comcast is offering cable modem

services in the Sarasota area. While not currently competing in the residential

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telecommunications market, the cable industry as a whole is vigorously developing the

technology necessary to become a preeminent player.

A third utility sector having impact on the telecommunications industry are the

electric companies. While electric companies express little interest in providing voice-grade

telecommunications service to residential customers, several electric companies are selling

excess capacity in their fiber optic transmission facilities to numerous telecommunications

companies.

Because utility companies are discovering different ways to generate new revenues,

the types of services offered and rates for such services should benefit consumers. The

current trend of one utility trying to providing multiple utility services should continue in the

years to come.